By now you've probably heard the news: biotech Moderna Inc. appears to have a viable coronavirus vaccine -- "mRNA-1273" -- that "interim Phase 1 data" from a study of 45 people shows to be "generally safe and well tolerated." In at least eight of those subjects, it generated enough of the right kind of antibodies to suggest that it might provide "full protection against viral replication" of the SARS-CoV-19 coronavirus.
Investors are elated, and the S&P 500 Index of companies is up well over 3% this afternoon on the news. The optimism has spilled over from the biotech sector, too, to infect (in a good way) stocks as far away as the basic materials sectors of chemicals (Dow Chemical (NYSE:DOW) up 9.4% in 1:45 p.m. EDT trading), copper (Freeport-McMoRan (NYSE:FCX) up 8.4%), and aluminum, too, with Alcoa (NYSE:AA) shares up an astounding 16.3%!
But is this news as good as it seems? After all, it was only four days ago that Alcoa CEO Roy Harvey told Bloomberg that Alcoa lacks "the clarity [or] the orders on the books, to signal that there is a definitive recovery coming." In the meantime, Harvey worries that the global aluminum industry is "producing more aluminum than it needs," which is a recipe for price weakness, and low profits (or losses).
At Freeport-McMoRan, too, the news isn't great. A rise in coronavirus infections at the company's Grasberg mine in Indonesia is causing Freeport to cut its workforce to a "skeletal team," reports Reuters today, and the company has suspended production at a New Mexico copper mine for similar reasons.
At Dow, meanwhile ... there are no reports of factory closures today, at least. But what news there is at the company -- an effort to collaborate with other companies such as 3M and DuPont to produce 100,000 "level 2 medical isolation gowns" -- was undercut by Dow's confirmation that the gowns in question will be "donated to healthcare professionals."
While that's great news for frontline healthcare workers, and good news for Americans in general as it shows industry is still stepping up to help fight the virus, there's not a lot of profit margin in producing goods at Dow's own cost, and then giving them away.
And that is not great news for the investors rushing to buy back into Dow, Freeport, and Alcoa stocks today. Recall that over the past 12 months, all three of these stocks have reported negative earnings. Worse than that, COVID-19 wasn't solely responsible for those losses. According to data from S&P Global Market Intelligence, each of Dow, Freeport, and Alcoa stocks lost money last year as well, before most of us even had any idea what a "coronavirus" was.
Before betting that the end of the pandemic-fueled recession will revive shares of these companies, investors should consider that they were already looking pretty sickly before coronavirus even came on the scene.