What happened
Investors in Novavax (NVAX 4.92%), Lakeland Industries (LAKE 0.78%), and Alpha Pro Tech (APT 2.38%) are having a tough start to the trading week. Shares of these companies were down as much as 28%, 26%, and 40%, respectively, in early morning trading on Monday.
As of 2:37 p.m. EST, Novavax was down 15%, Lakeland Industries was down 25%, and Alpha Pro Tech was down 27%.
So what
None of these businesses issued a press release, SEC filing, or received an analyst downgrade today that could help to justify their huge double-digit drops. That makes it likely that traders are simply in profit-taking mode with all of these companies today after their huge run-ups.
Image source: Getty Images.
Novavax, Lakeland Industries, and Alpha Pro Tech have all been identified as good hedging vehicles against the outbreak of SARS-CoV-2, the virus that causes COVID-19, and have gone on huge runs since the start of the year.
Novavax's investors are up 203% since Jan. 1, in part due to the company's announcement that it is developing a vaccine for COVID-19. Human trials are expected to start by late spring. That's exciting, but it's important to remember that drug development takes years to complete and we're just talking about the start of a phase 1 clinical trial.
Lakeland Industries' stock is up 72% since the start of 2020, also due to a recent spike in trader interest. Lakeland sells industrial protective clothing such as hoods, aprons, sleeves, and arm guards. The odds are good that demand for its products is sky-high right now given the fast spread of the disease. Traders have likely bid up Lakeland's shares in expectation of blowout first-quarter results.
Alpha Pro Tech is one of the biggest beneficiaries of the surge in interest in the coronavirus. Shares are up 369% since the start of the year, and that's after accounting for today's drubbing. Alpha Pro Tech also sells protective gear like face masks and coveralls, and management announced late last week that it has already booked $14 million in orders for one of its face masks. That's a massive number when compared to the $46.7 million in sales that the company produced in 2019, so Alpha Pro Tech also looks poised to post incredibly strong first-quarter results.
For whatever reason, traders are viewing today as a good time to book profits in all three of these red-hot stocks.
Now what
Novavax, Lakeland Industries, and Alpha Pro Tech are all trader favorites right now, so there's no telling where they could be heading next. If the spread of coronavirus continues, it's possible that they all could continue to surge. If governments finally get control over the disease, it's possible they will all crash.
Given the uncertainty, I view all three of these businesses as untouchable. Why would I bother buying shares of any of these speculative companies when there are so many high-quality stocks that are trading at a discount right now? After all, it's likely that all of the "coronavirus stocks" will come plunging back to earth once the disease stops dominating the headlines.
