Investors are racing to invest in vaccine-producing companies, sending the shares higher on hopes for a profit windfall from selling a COVID-19 vaccine.
The Story
It is thought that vaccines offer the best hope for exiting the pandemic as soon as possible with the least damage to public health. So it is of no surprise that pharmaceutical companies developing a coronavirus vaccine have outperformed. The firms with the most advanced trial results (Stage 1,2,3) are the top risers.
The Chart
Year-to-date performance of pharmaceutical shares*
Past performance is not an indicator of future results.
The Risks
For the vaccine developers, the risks are twofold.
The first is that the vaccine doesn’t arrive quick enough. With so much global resource directed at the coronavirus; the risk is higher than normal that a competitor successfully trials and sells their vaccine first.
The second is that governments intervene to keep pricing down. That means even if a vaccine is successfully developed and sold, the return on investment (ROI) does not match investor expectations.
The Opportunities
It can be seen from the chart that the share prices of companies with advanced clinical trials for COVID-19 vaccines have handily outperformed. The completion of those trials, being approved by health authorities and making sales are all potential triggers for more investor enthusiasm for the shares.
It can also be seen that some healthcare companies are yet to price in any benefit from the production of a vaccine. These share prices have the potential to catch up, should there be new developments on a coronavirus vaccine.
How to Play it
* Pharmaceutical stocks
Moderna (MRNA)
Inovio (INO)
BioNTech (22UA)
AstraZeneca (AZN)
Pfizer (PFE)
Sanofi (SAN)
GlaxoSmithKline (GSK)
ETFs
SPDR S&P Biotech ETF (XBI)
Invesco DWA Healthcare Momentum ETF (PTH)
VanEck Vectors Pharmaceutical ETF (PPH)
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