In this episode of Market Foolery, Chris Hill chats with healthcare expert Shannon Jones to discuss the recent spike in coronavirus and how it may play out in the market. They also talk about how this outbreak is different from earlier outbreaks, such as SARS and MERS. They also look at some stocks working on COVID-19 and cancer.
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This video was recorded on Feb. 24, 2020.
Chris Hill: It's Monday, Feb. 24. Welcome to MarketFoolery. I'm Chris Hill. With me in studio today -- and I'm just going to point out that this was planned last week; it's not because of what's happening in the market but that just, you know, it's convenient -- it's healthcare expert Shannon Jones. Thanks for being here.
Shannon Jones: Hey, glad to be here! And talk about impeccable timing, because we could not have planned this any better.
Hill: We could not, because as of this moment the S&P 500 is down by 3%. So is the Dow Jones Industrial Average. As I've said before, don't blame the headline writers. Don't blame them, because it's a lot sexier to say the Dow is down 900 points than it is to say that Dow is down 3%. But when you walked in this morning and you saw the headlines about the coronavirus and the impact it was going to have on the market, what went through your mind?
Jones: I had a mixed reaction, Chris. On the one hand, I'm not surprised at some of the headlines we're seeing. So for those who may be unaware, we did see a spike -- we actually saw new outbreaks happening in new countries. We're talking about South Korea, Italy, now Iran, even. And so, I think, on one hand surprised, but also not surprised, because we see this every several years. There's some outbreak; it's hard to contain. I think, though, Chris, coming into work today, though, if I look back over the past couple of weeks, there was kind of a sense that maybe this is contained just in China, seems like they have a handle on it. But really this weekend I think you really started to see things change a lot faster than what we were expecting.
Hill: So, a couple of things going through my mind. One is, to my recollection, this is sort of the second spike we've seen in cases. The first was localized in China. The second, as you said, is these new cases in new countries. And the impact on stocks that it's having. And, not surprisingly, you look at the cruise industry and Royal Caribbean, Norwegian Cruise, Carnival -- they're all hitting fresh 52-week lows. That really shouldn't surprise anyone. And I want to get to, in a minute, sort of the amount of time we think it'll take for different industries to rebound.
But as you said, the new cases, I think -- just to pick France as one example, we have the finance minister from France coming out and saying that there's 35% drop in tourists. And that's the impact that France is seeing. France is a country of 67 million people. They have, I believe, to this point, only 12 cases reported, only one death, and yet that alone is enough to see that kind of significant drop. And we talk all the time about temperament in investing, but just temperament in our everyday lives as human beings, that's like, yeah, we're emotional beings, and so we're not going on that cruise, or we're not going to France, and that's going to have an impact.
Jones: Unless you're Warren Buffett, who actually was on CNBC today, really talking about his shareholder letter, but talked about the coronavirus. And, of course, in true Warren Buffett fashion, he came out and said, "Don't invest based on today's headlines." Of course, he's always going to be cool, no matter what the crisis is. And so, yeah, I think there is, of course, more panic I see happening right now in the markets, and I'm not surprised by it.
And I think even from a humanitarian perspective, this is a deadly outbreak that is spreading and does not appear to be contained. So as the kids like to say, Chris, this one hits a little bit differently than some of the other outbreaks. I'm thinking of SARS back in 2002-2003. I'm thinking of the Zika virus back in 2016. Even Ebola. This one just has a lot more uncertainty with it, No. 1, because we really still don't know a whole lot about this virus. We know it's in a class of viruses. I think it's the fifth type of coronavirus that's hit the population. But when you're talking about symptoms, there's some talk even that some people may be asymptomatic, meaning they show no symptoms but they're contagious. And that's scary, right? Like, if I'm just a human being, that's scary, because now I don't really know how to wrap my head around it.
But one interesting thing -- that I think, for me, as I look at the situation -- that makes me a little bit more concerned now with this kind of second wave is, if you look at Iran. Iran really hasn't had a huge spike in cases, but what you have seen is the rate of death actually go up faster than the rate of infections. And that's interesting, Chris, because people typically don't die immediately from coronavirus. It takes weeks. So the fact that now all of a sudden they have, I think, maybe about eight or nine deaths as of this recording, that's actually going up quite faster than the infection rate -- tells me these are people that were probably sick and didn't even realize they had the coronavirus and there was no type of containment. So there's probably some underreporting just on the infection side alone in an area like that. And, of course, you know there's a lot of speculation. Is the government there even able to contain it? So I think it's just different this time around than with some of the others.
Hill: Ten days ago, our friend and colleague Bill Mann had tweeted out something regarding basically the markets shrugging this off. And he pointed out that in 2006 there was instability in Nigeria and people were nervous because of the systemic importance of Nigeria, and markets fell. And he was like, "That was Nigeria; this is China," you know. And he basically said, "I'm not really sure why the markets are just shrugging this off."
And to go back to something that you sort of touched on. I don't think either one of us is sitting here saying, "Yup, this panic-selling makes total sense to me." But by the same token, it's a recognition that there are a lot of unknowns and there continue to be unknowns. And I think that for all the times that we say to listeners, all the times we say to our members, "Hey, sit back, relax, take the long view," that sort of thing, I actually think this is one of those times where you want to pay a little bit more attention to the companies that are in your portfolio. And take a moment and think about how you personally think about them. And you and I were talking about this earlier this morning. There are some industries that, let's just say that a month from now, this is all gone, this is all taken care of, it's completely contained -- there are some industries that are going to bounce back pretty quickly, they're going to get their supply chain and their businesses up and running pretty quickly. There are others, it's going to take months -- it may take the rest of 2020 and push into 2021 before they get back to business as usual.
Jones: Absolutely. And really that stems from the fact with China. It's the world's second largest economy, accounts now for about a third of world GDP growth. And that's up from 3% just back in 2000. So you're exactly right. I do think you need to take stock of your portfolio and know what's going on with it. But yeah, they're going to be certain industries that do take a while. The pharmaceutical industry is going to be a huge one.
Janet Woodcock with the FDA -- she's a director with the FDA -- actually in October stood before Congress and said, "We are overreliant on our manufacturing of something called Active Pharmaceutical Ingredients," or APIs. Think of those as what makes the drug actually work. About 72% of that is manufactured outside of the U.S., most of that happening in China. So, a lot of the prescription drugs that you're taking are actually those APIs are made in places like China, and we are really overly reliant.
So you can expect to see in the coming months and the coming quarters, and to your point, I think even a year beyond, having to go through the supply chain shortages in the pharmaceutical industry. And not only that, you're thinking about, like, clinical trials. Right now, every biopharma company wants to have a trial run in China, because that is a huge opportunity in terms of the market. But even then, they're having trouble recruiting patients into the coronavirus trials just because of the dynamics that are happening there.
So yes, the cruise industry, consumer electronics industries -- all the parts and components, the automotive industry. I mean, there's going to be long-term ripple effects, and I think people just need to realize that and really reset their expectations.
Hill: We got a question from a listener, and we always love getting questions. And people can email them; they can tweet them. This was actually posted in a review on our Apple podcast, and it was a five-star review, so thank you for that. Someone whose screen name is, it looks like "Justice Lady," but the letter "S" is missing. So, JuticeLady. Anyway...
The question is, "Can you talk about pharma stocks relating to coronavirus vaccine and cancer treatment? Is there any opportunity?"
It's a great question, and I think a natural question, because we're looking at this outbreak, and on some level, we're all asking the same question, which is, who's going to solve this? And if you're an investor, you're probably thinking, who's going to solve this? How much money are they going to make off it? Should I buy shares of it?
Jones: Yes, great questions. And really, this is a loaded answer; there's so much to that. First off, I will say, with other outbreaks, if we just look back across history, particularly viral outbreaks, they tend to spin up and die out just as quickly as they come. So with that being said, it's really hard for large biopharma players, and even some of the smaller players, to really come up with a solution, whether that be a vaccine to help prevent it or even just a treatment, if you do have it. It becomes really difficult to spin up something new and do it in an economic fashion. And so, oftentimes, what we've seen is, especially with a lot of the large biopharma players, they're left holding the bag, so to speak. They are high and dry when these viruses come and go.
And you have to remember, for vaccines and really drug development, this is something that typically takes years. Thankfully, the government is stepping in and trying to fast-track a lot of these potential treatments; I think there's over 30 companies right now that are trying to come up with something. But all in all, the question is, will it be safe, will it be effective, and can it be produced at scale? Those are all three very different things that I think, whether you're a big player or a smaller player, it's really hard to do well.
So with that being said, there are some opportunities at least that are interesting right now. There's one, Inovio Pharmaceuticals (NASDAQ:INO) -- that's ticker symbol INO -- they have experience when it comes to outbreaks. They did it with MERS; they did it with Zika. And when it comes to speed, which is really the critical factor, I think, with any sort of viral outbreak, Inovio was up and running within seven months with a vaccine. And so, for me, I'm looking at, has a smaller player done this already? Do they have the expertise? Do they have the regulatory know-how? But not only that -- do you have something else? Because just like any other biopharma investment, I don't want you to be a one-hit wonder, especially when it comes to viruses. And so this is a company that also is working on some late-stage cancer trials. I think the JuticeLady who wrote in asked about cancer. They've got brain cancer product in phase 3 and phase 2 treatments that are going after the immune system for cancer in phase 2 trials.
Another one. This is a really tiny company -- and really, any of these right now, I would say, just watch. I would not say invest in -- but NanoViricides, this is a very tiny player, $25 million market cap, they make nano --
Hill: Twenty-five million?
Jones: Twenty-five million. They make nanomedicines for viral diseases. And it's really one of the few smaller players that's trying to come up with a treatment, not just a vaccine. So this is one to watch.
Again, I'm very skeptical, especially with new players entering the space like this. But then you've also got a company like Moderna Therapeutics -- much larger; $6 billion market cap. They're partnering with NIH to release a vaccine in about a year. Again, speed is of the essence, so we'll see if this is still a thing a year from now. But of course, that's ticker symbol MRNA.
And then lastly, I would even throw out a company called Co-Diagnostics, and this is ticker symbol CODX -- $81 million market cap. They just started design work for a test to actually screen for coronavirus. Apparently, it took just three weeks for them to actually develop the test, but there is some speculation as to whether or not it's reliable. And that's an important factor when it comes to diagnostics right now.
Right now, there's still a lot to be desired when it comes to something that is reliable when it comes to testing for coronaviruses. We're seeing this happen in China; you know, maybe this person has it, maybe they don't, or maybe they are testing positive after they've already tested negative. The reliability of these diagnostics is going to be key. It has to be sensitive enough to screen for those that are actually contagious, so the question marks are out. But I look at the SARS outbreak of 2002-2003 -- it took about six months to establish tests that were reliable enough. So it's not going to be something that's quick on the diagnostic front, but it's got to be something that is reliable and is well used and recognized by the larger medical community.
Hill: I know, it's so small, it can fit in your pocket. What was the name again, of the nano company?
Jones: Yes, that company was called NanoViricides, and that's ticker symbol NNVC.
Hill: I'm glad you mentioned the diagnostics, because that is a piece of this story that I find particularly interesting, as someone who has a tiny, tiny fraction of your brain for science. But to me, that's in some ways the most interesting part. It's, we're not even sure. Put aside the cure for this. We're not even completely sure how to recognize it right off the bat, and that's, you know, when you were talking about the reliability and how important that is, it reminded me -- I hate to say this -- but it reminded me of the Theranos story and how the promise of Theranos was the speed of the test, the fact that it would only take a prick of your finger to test your blood, all the ways, you know, and it's going to be completely reliable. And of course, it was all a complete lie and --
Jones: And certainly not to put that company in the same category as Theranos -- you know my feelings about Theranos -- but I will say, Chris, it's even more difficult than that, because with these viruses, they have the ability to mutate. So, often, by the time you've created a test or an assay to determine, "Yes, this is indeed, someone has this disease," oftentimes it's mutated, so now you have to make sure you've got another test to capture the mutation and that's really hard, especially for a smaller player that doesn't have some of the deep pockets that a lot of the bigger biopharma players, which are also in the game. Some of the most notable ones being GSK, Gilead Sciences, AbbVie, trying to repurpose some drugs. But you've got to be able to stay up to date on what is happening and really have the data to be able to support it. And that's a tough sell.
Hill: Without getting overly personal, is there anything in your portfolio that you are looking at with an eye toward transaction? And that can be either, "Boy! I don't know if this is going to make it" related to this, related specifically to coronavirus and the market drawdown. Is there anything that you're looking at in your portfolio and thinking, "I might be moving this to sell," or on the flip side, is there anything where you -- I mean, we had started this whole conversation talking about, sort of, this second spike in cases.
And I think it was on this show, about a month ago, I was talking about Starbucks and how at the time Starbucks was about $88 a share, and I said something to the effect of, "It wouldn't surprise me at all if this stock dropped somewhere in the neighborhood of 10% to 20% over the next few months," and "It's a business that will take a short-term hit, and that's exactly what the hit will be. It will be short term, and so if it's on your watchlist maybe you're trying to --" and I'm surprised that it didn't drop more. I mean, as of this recording, it's about $85 a share. So there may be stocks out there, stable businesses that have further to fall. But is there anything that you own right now that you're thinking of transacting one way or the other?
Jones: Good question. So, I will say on the sell front, no. And that's because, again, we've seen outbreaks like this happen every couple of years. So for me, I'm looking out over the next 10, 20 years and beyond, so I have no plans to sell off anything. I mean, honestly, anything in my portfolio right now is a game for potentially a buying opportunity, particularly for some of the biotechs that I own. Only because I want to make sure that if I am investing and I'm adding any more to a position -- a company like a Vertex Pharmaceuticals -- I'm doing it at an opportune time. So if anything, I'm getting my watchlist ready, I'm beefing up my cash position right now. My cash position is sitting around at about 16%. I might go a little bit higher in terms of my cash, because I do want to be able to get some good stocks at a discount, if and when that happens. But I'm in the camp of I am not panicking; if anything, I am starting to get more interested.
Hill: But your cash position is definitely higher on percentage basis than mine is. Can I borrow a little? We'll talk about that after the show.
By the way, you just reminded me -- this is the thing we love about the people's short-term mentality. Like, this is where the short-term mindset actually works in the favor of people who are thinking in terms of decades and not months.
Jones: Exactly. It's really about owning great businesses, not just stocks, but owning great businesses and being able to hold, and knowing what's worth adding on to when you see a pullback in the broader market, not just with an individual stock. But if you know, all the stocks are getting hammered, that could actually be a great time to load up on some of your favorites.
Hill: Thank you to JuticeLady for the review. We really appreciate it, as we appreciate all the nice reviews that people leave, because it actually helps other people find the show. So thank you for that.
Real quick before we wrap up, on a completely different topic, because you are one of the biggest NFL fans that I know, you're also one of the people that I know who's actually watching the XFL.
Jones: [laughs] I'm trying to watch the XFL.
Hill: So, for me, you're a proxy for the viability of another professional football league in America other than the NFL. Are you enjoying the XFL? Give me the bear case -- the XFL is ... ?
Jones: ... it's the XFL.
Hill: Well, it's not the NFL. And for some people, not you, but for a lot of people, there's only so much appetite for professional football in America, and so it's like, "Ugh! I'm going to move on to college basketball or baseball or something like that," but what's the bull case for the XFL for you right now?
Jones: Yeah, so, I'll say, for the XFL for me, I mean, it's definitely helping my withdrawal right now, as we have, you know, made it past the Super Bowl, so it's given me something to hang on to. But really, it is quite entertaining. I'd say even maybe a little bit more entertaining than the NFL, only because, No. 1, you have the reporters who literally will run up to a quarterback who's just thrown an interception and ask, "Why did you do that?" And they have to respond, and I love that kind of in-the-moment response that's not been massaged by PR people. I also love the -- I don't know, if you've seen the referees who are in the booth reviewing, and they literally have -- I think, it's like an Xbox controller -- I don't know what it is, but they're going back and reviewing the play, but you're getting their thought process.
And so, for me, I love the in-the-moment, get inside of the player's heads, the referees' heads. And I like the extra point opportunities. It's not just about go for the extra one; you can do two or three extra points if you like. And so I do think it has that entertainment value. It will never, ever replace the NFL for me, but when I'm in need of a good football fix, XFL is it.
Hill: Shannon Jones, always good talking to you. Thanks for being here.
Jones: Always fun. Thank you, Chris.
Hill: As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear.
That's going to do it for this edition of MarketFoolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.