A "black swan" event is a highly unusual, utterly unpredictable happening that throws everybody for a loop. As far as the stock market is concerned, black swans are almost always bad. For instance, 9/11 was a black swan. COVID-19 is a black swan, too. 

The coronavirus, which did not exist a year ago, has now shut down much of the world economy. The stock market hates that sort of uncertainty, and so earlier this year there was a massive sell-off.

black swan in a group of white swans

Image source: Getty Images.

Fear drove the market down

March in particular showed really a scary drop. For instance, Shopify (NYSE:SHOP) shares dropped from $593 on Feb. 12 to $305 on March 18. To lose almost half your money in a month is scary.

In the weeks and months that followed, the market discovered that Shopify's business is actually doing great during this crisis. Revenue was up, way up. When the market finally figured it out, Shopify zoomed up to over $1,000 a share. Indeed, many internet stocks are seeing a surge in their business during this health scare. Stocks like Twilio (NYSE:TWLO), Zoom (NASDAQ:ZM), and Datadog (NASDAQ:DDOG) have all doubled in six months.  

Internet Stock Price on Jan. 2 Price on July 2 Gain
Shopify $403.99 $1,029.97 159%
Zoom $68.80 $261.74 284%
Datadog $38.22 $89.59 137%
Twilio $100.01 $232.35 136%

Data from Yahoo Finance.

Why is this happening in the middle of a quarantine? Humanity is fighting against COVID-19. We don't like this stupid virus, and we want to beat it: "You're not going to defeat me! I'll move my business online." The rise in internet stock prices reflects this resiliency.

Yet far bigger rewards are being made by those small-cap biotech companies that are pursuing a coronavirus vaccine. These tiny companies have declared war on COVID-19, and the market is cheering these stocks higher and higher. 

Biotech Stock Price on Jan. 2 Price on July 2 Gain
Vaxart (NASDAQ:VXRT) $0.34 $7.37 2,006%
Novavax (NASDAQ:NVAX) $3.99 $81.64 1,951%
Inovio Pharmaceuticals (NASDAQ:INO) $3.39 $21.45 550%
Altimmune (NASDAQ:ALT) $1.89 $10.42 451%
Vir Biotechnology (NASDAQ:VIR) $12.56 $40.32 220%
VBI Vaccines (NASDAQ:VBIV) $1.41 $2.87 108%

Data from Yahoo Finance.

What is the surprising coronavirus stock?

It's a biotech stock. Specifically, it's a small-cap biotech company that specializes in vaccines. And it's very surprising. It's Novavax, in which I am an investor, and it has surprised me.

When I bought the stock, I knew it was super-cheap, and potentially had a magnificent upside because of the company's flu vaccine. But of course I was surprised by COVID-19, and how Novavax's stock took off when the company started pursuing a vaccine for the coronavirus.  

It's shocking that Novavax has had a 20-bagger, when the company's COVID-19 vaccine isn't even out of phase 1 trials yet. And we're seeing similar market reactions across the biotech sector, in names from the table above -- Vaxart, Altimmune, Inovio Pharmaceuticals, Vir Biotechnology, and VBI Vaccines. If you had invested $1,000 in each of those companies on Jan. 2, your $6,000 would now be worth over $59,000. 

While sharp gains are always surprising, in retrospect they're less so. These stocks have a lot in common. All six of these names are small-cap biotech companies, and all six of them specialize in vaccines.

Contrast this with Gilead Sciences (NASDAQ:GILD) and its COVID-19 drug, remdesivir. It's a very promising treatment for patients who are severely ill from COVID-19, yet the market's not excited at all about that news. Gilead is up 17% this year.

Understand that the number of patients who are severely ill from COVID-19 is a very small number of people. It's far less than 1% of humanity. But the number of people who might be vaccinated is astronomical. You and I will be vaccinated. Perfectly healthy people will be vaccinated. Most of the world will be vaccinated. 

Let's put it this way -- Novavax is talking about manufacturing 1 billion doses in 2021. If the company charges $1 a shot, the drug's a blockbuster. Charge $40 a shot, and it's the most valuable drug in the world. Charge $100 a shot, and it's the most valuable drug in the history of pharmaceuticals.

Who will win the vaccine race?

It's too early to say for sure. Speculators and other optimists have run up share prices across this entire sector. While I can't name the ultimate winner yet, there are many surprises ahead of us. Here's one: Maybe this excited mob of investors is right to be excited about biotech vaccine companies, and right to be investing now. 

I think many people are underestimating how big this opportunity is. For instance, an analyst at H.C. Wainwright, Vernon Bernardino, suggested that the Novavax vaccine for COVID-19 might be worth $400 million in annual sales. That's a conservative number, to put it mildly. I think there's a good chance that Novavax's COVID-19 vaccine will be worth $0 in 2021. That's the worst-case scenario. But the best-case scenario is a lot higher than $400 million. It might be $4 billion, or $40 billion.

The COVID-19 vaccine market will be incredibly large -- far bigger than flu vaccines, for instance. And all six of these biotechs are still very small companies, despite the massive gains so far. Yes, the market is speculating about possible riches in front of us. But it's not an irrational mob. Consider that these stocks are still tiny.

Biotech Vaccine Specialist Market Cap

Phase 1 Vaccine Trial Started?

Novavax $4.79 billion Yes
Vir Biotechnology $4.75 billion Yes
Inovio Pharmaceuticals $3.39 billion Yes
Vaxart  $699 million No
VBI Vaccines $661 million No
Altimmune $225 million No

Financial data from Yahoo Finance. 

The surprising COVID-19 stock you will really want to own is the small-cap biotech company that has a COVID-19 vaccine approved by the FDA. That stock will be amazing. Because Novavax has had such wonderful success with its flu vaccine, I'm optimistic about its COVID-19 chances. But it's not a bad idea to buy a basket of these stocks, and spread out your risk. While some of these names will be hit by bad news, the potential upside for the winners is far larger than we can fathom.