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Thinking About Buying Coronavirus Stocks? Answer This Question First

By Prosper Junior Bakiny - Apr 23, 2020 at 7:42AM

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This medical devices giant may be one of the best coronavirus stocks to consider buying.

Since the beginning of the year, all three major market indexes are down. For instance, the S&P 500 is down by 12.6% year to date, while the Dow Jones Industrial Average is down by 18.3% over the same period. However, not all stocks have been performing as poorly as the broader market. For instance, shares of biotech companies Moderna (MRNA -1.41%), Inovio Pharmaceuticals (INO -5.38%), and Novavax (NVAX -2.47%) are up by 168.1%, 172.7%, and 483.2%, respectively. All three of these companies have posted massive gains for the same reason: They are all working to develop vaccines for COVID-19, and if they are successful, their stocks could skyrocket even more. However, before you jump on this bandwagon, there's an important question you need to ask yourself.

Answer this question first

Investors looking to buy shares of Moderna, Inovio, or Novavax should ask themselves the following question: What is my timeline? Sure, buying shares of Moderna could mean massive returns over the next several weeks. However, whether Moderna will manage to develop a vaccine for COVID-19 successfully is far from a sure bet. After all, according to the World Health Organization (WHO), there are currently at least 70 potential COVID-19 vaccines currently in development. And even though Moderna has already started a phase 1 clinical trial, the company could still run into regulatory hurdles or negative results. 

Hand holding test tube with blood marked coronavirus

Image source: Getty Images.

Furthermore, Moderna currently doesn't have any products on the market, which means its recent massive stock-price gains have no legs to stand on other than its attempts to develop a COVID-19 vaccine. If that project doesn't pan out, the company's shares could plunge.

In short, Moderna doesn't look like a stock worth holding onto for a long time, at least not at the moment. Of course, the same logic applies to both Inovio and Novavax. Warren Buffett, who is widely regarded as the most successful investor of our time, famously said the following: "If you are not willing to own a stock for 10 years, do not even think about owning it for 10 minutes." Investors would do well to heed this advice before buying shares of any of those three stocks.

A coronavirus stock that is worth serious consideration 

One coronavirus stock I think may be worth buying is Abbott Laboratories (ABT 0.20%). Shares of the medical devices company are up by 12.8% since the beginning of the year, and Abbott likely owes this performance to its development of three COVID-19 tests. In particular, Abbott launched a coronavirus antibody test that can determine whether a person has been previously infected with the SARS-CoV-2 virus that causes COVID-19 and has recovered. The company announced it would roll out 4 million of these tests in April, and starting in June, the company plans to ship 20 million.

While these tests did not positively affect the company's top line during the first quarter, investors should start to see Abbott's COVID-19 tests have a material effect on its revenue in the second quarter. And beyond its work relating to COVID-19, Abbott remains a leader in the medical devices market. The company's suite of products continues to drive revenue and earnings growth. During the first quarter, Abbott reported net sales of $7.7 billion, higher than consensus analyst estimates of $7.34 billion and up 4.3% on an organic basis. 

Meanwhile, the company's adjusted earnings per share (EPS) came in at $0.65, once again ahead of the $0.58 analysts were expecting. Sure, Abbott will experience headwinds as a result of the ongoing health crisis; in fact, the company has decided to withdraw its guidance for fiscal 2020 as a result of the COVID-19 pandemic. Abbott had previously predicted organic sales growth between 7% and 8% for the year, as well as adjusted EPS between $3.55 and $3.65, the midpoint of which would have represented double-digit percentage growth. 

Abbott thinks it has the financial fortitude to ride out the current crisis, noting in a press release that "[Our] strong financial position is supported by a healthy balance sheet, including approximately $3.7 billion in cash, cash equivalents and short-term investments, and revolving credit facilities in place that could provide additional access to up to $5 billion, if needed." Thanks to its strong financial position, Abbott should be able to handle the ongoing outbreak relatively well. 

Investor takeaway

Abbott will soon reap the financial benefits from its COVID-19 tests, and the company has other products on which to rely. Abbott also boasts a strong balance sheet, and unlike companies such as Moderna, Inovio Pharmaceuticals, and Novavax, Abbott is profitable. For those reasons, Abbott looks like an attractive healthcare stock to consider buying right now. 

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Abbott Laboratories Stock Quote
Abbott Laboratories
$110.49 (0.20%) $0.22
Novavax, Inc. Stock Quote
Novavax, Inc.
$40.34 (-2.47%) $-1.02
Inovio Pharmaceuticals, Inc. Stock Quote
Inovio Pharmaceuticals, Inc.
$2.46 (-5.38%) $0.14
Moderna, Inc. Stock Quote
Moderna, Inc.
$171.81 (-1.41%) $-2.46

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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