On average, stocks in the Nasdaq stock index comfortably outperformed both the S&P 500 and the Dow Jones Industrial Average during the month of August (rising 9.59% versus 7.01% and 7.57%, respectively). Companies such as Tesla pulled the technology and innovation index to all-time highs, while some laggards failed to participate in the run entirely.
BioMarin Pharmaceutical was by far the worst Nasdaq performer in August as a result of negative FDA news on its blockbuster hemophilia drug, Roctavian. This is a unique situation, and it is hard to extrapolate any broader context for the index's performance from this one price change.
When digging deeper into the largest Nasdaq losers for August, two themes do emerge: Companies like Moderna (MRNA 1.69%) (down 12.43% in August) and Gilead Sciences (GILD 0.23%) (down 4% in August) are creating medicines for COVID-19 and were struggling last month. Stocks like Western Digital (WDC 2.77%) (down 10.86% in August) providing hardware to power economic activity that has been halted by COVID-19 are suffering as well.
The speculation is that the COVID-19 pandemic will eventually resolve itself. Is it time to contemplate investing in these three under-performing Nasdaq stocks from August? Let's take a closer look.
Image source: Getty images.
Moderna and Gilead: Investing in potential COVID-19 biotech heroes
With infectious disease expert Dr. Anthony Fauci consistently expressing his belief in a COVID-19 vaccine by 2021, it's tempting to dabble in the stocks potentially creating the life-saving inoculations for the world. Still, it's important to remember there are 130-plus vaccine candidates currently in clinical trials, and many will surely fail. Finally, the news coming out about these companies racing to a vaccine can be hard to keep up with, which makes picking a winner even more difficult.
For example, Moderna is a popular vaccine pick. The company has been actively promoting the early promising results of its vaccine candidates. This optimism coincided with executives aggressively selling off their own shares. It's difficult to reconcile such positive feedback with a bearish sell signal by executives.
Beyond picking a winner being immensely challenging, companies such as Johnson & Johnson are planning on selling doses of whatever vaccine is developed at-cost to enhance accessibility. Decisions like this could feasibly limit the profit potential of other successful vaccines. In this light, even the company that succeeds first in distributing an approved vaccine may not realize large profits.
What about treatments? Gilead Science's COVID-19 drug remdesivir has generated a lot of investor interest. While this could be fruitful for the company shorter term, other competing treatments -- like the blood plasma treatment granted emergency authorization last week -- are quickly entering the market as well. Additionally, any vaccine significantly (not entirely) diminishes the value of a COVID-19 treatment.
When considering all of this, an effective treatment or an approved vaccine may not bring the stock-price tailwinds they're often thought to create.
3. Western Digital: What about a hardware comeback?
Stocks such as Western Digital and Cisco make hardware vital to several sectors, including data centers and manufacturing. Several of the hardware revenue streams have dried up with COVID-19 forcing so much economic activity to pause. States are, however, slowly starting to open back up. Any of the 130-plus vaccine candidates being approved will be instrumental in powering a comeback for many of the industries that lagging Nasdaq hardware companies cater to.
For this type of company, a vaccine truly could be a game-changer. Companies like Western Digital are indifferent to which biotech company saves the day and creates the pandemic-fixing inoculation. Hardware companies badly hurt by the virus simply care about any vaccine enabling economic activity to slowly return to normal.
So what should be your next move?
Investing in a hardware comeback seems to give stock buyers a higher chance of success than trying to pick a vaccine needle in a haystack. Sure, Moderna may win the race, and maybe its share price will even be rewarded. If any of the other dozens of vaccine-creating companies do so instead, hardware plays will still benefit, but vaccine companies not winning the race may continue performing poorly.
August brought caution in some of Nasdaq's biotech and hardware companies. While biotech companies could save the day, other lagging Nasdaq sectors for August, like hardware, give investors a much higher probability at a recovery. This is where I would look first for a quick comeback.
