The stock market has been chock-full of surprises in 2020. Although investing always involves an element of risk and uncertainty, the market investors have faced this year has doubtless been one for the books. And while we can't know whether another market plunge is looming in the near future, there are still plenty of profitable investment opportunities on the horizon.
While some stocks have lagged amid the current recession, companies including biotech giant Moderna (MRNA 0.89%) and cannabis operator Cresco Labs (CRLBF 2.49%) have stayed ahead of the curve. However, if you're thinking about adding either of these companies to your portfolio, it's important to look beyond their cheap share prices and near-term gains to discern what green flags, if any, exist for continued growth.
Image source: Getty Images.
Moderna
Shares of biotech company Moderna have gained an astonishing 268% since January, even though the stock is still relatively affordable at about $70. Wall Street analysts predict that Moderna's earnings could grow by roughly 17% per year for the next five years, with a compound annual growth rate (CAGR) of approximately 92% over the next decade.
These sparkling numbers can largely be attributed to Moderna's rise to the forefront of the coronavirus vaccine race. The company's vaccine candidate, mRNA-1273, is one of a small group currently being evaluated in late-stage clinical trials. Other companies with coronavirus vaccine candidates enrolled in phase 3 human studies include Johnson & Johnson and Pfizer.
The ongoing phase 3 study of mRNA-1273 commenced at the end of July. At the time of this writing, Moderna has enrolled more then three-quarters of its total subjects for the late-stage study, and approximately 12,000 individuals have already been administered their second dose of mRNA-1273. The study is occurring in partnership with the National Institutes of Health (NIH) and the Biomedical Advanced Research and Development Authority (BARDA). Moderna has inked multiple supply agreements for mRNA-1273 to date. These include a $1.5 billion contract with the U.S. government for up to 500 million doses of mRNA-1273 as well as an agreement with Canada to supply up to 56 million doses of the potential vaccine.
On Sept. 29, Moderna released interim data for older subjects from the phase 1 human trial of mRNA-1273. The older subjects were divided into two groups, with one cohort of participants between 56 and 70 and a second cohort of participants aged 71 and up. The subjects were administered two doses of mRNA-1273 in two dosage levels, 25 micrograms and 100 micrograms, with a 28-day gap between doses.
Management reported that the 25-microgram and 100-microgram doses were both "generally well-tolerated" in each age group. However, the 100-microgram dose produced the most robust response, which is why this was the dose level picked for the ongoing phase 3 study. Moderna's chief medical officer, Dr. Tal Zaks, said that "the interim phase 1 data suggests that mRNA-1273, our vaccine candidate for the prevention of COVID-19, can generate neutralizing antibodies in older and elderly adults at levels comparable to those in younger adults."
The Financial Times reported in July that Moderna could charge between $50 and $60 for every course of mRNA-1273, which management recently said could be ready for an emergency-use application to the FDA by the end of November.
As of Sept. 17, Moderna's product pipeline includes mRNA-1273 and four products in phase 2 clinical trials. Moderna has never brought a vaccine to market, so success here would be monumental for the company's future, its balance sheet, and of course, its shareholders. The balance sheet left plenty to be desired before the pandemic -- in 2019, the company reported a 55% year-over-year decline in revenue. By contrast, in first six months of 2020, Moderna boosted its revenue by roughly 157% over the first half of last year. The company is still a pretty speculative buy at the moment, although one that could pay off handsomely if its vaccine candidate comes to fruition.
Cresco Labs
Cannabis stocks haven't had an easy year, but Cresco Labs has fared far better than most. The "largest wholesaler of branded cannabis products," as the company describes itself, trades at about $6 per share, just below its trading price earlier in the year before the bottom fell out of the market. Cresco is a dominant force in the U.S. cannabis sector, with 19 dispensaries and 15 production facilities spread across nine states.
The company boasts a bevy of brands in its portfolio, including Mindy's Edibles, daily wellness brand Remedi, and Good News, which sells a variety of products including vapes and gummies. Cresco has a significant presence in Illinois, where marijuana has been fully legalized, announcing Sept. 22 that it had received approval for its 10th dispensary in the state.
The company has reported exceptional financial results throughout the pandemic, with above-average growth on both a quarterly and year-over-year basis. In the first three months of this year, Cresco Labs reported a 60% increase in revenue over Q4 2019. That Q1 revenue of $66.4 million represented a 26% boost from the company's Q1 2019 earnings, with same-store sales up 144% year over year.
Naturally, investors were more concerned about whether Cresco's balance sheet would come through the second quarter unscathed. During that three-month period, which came to a close on June 30, Cresco Labs reported a 42% quarter-over-quarter revenue increase to $94.3 million. The company finished the second quarter with approximately $71 million in cash and cash equivalents and total assets of $1.2 billion. Considering that the company reported just $49.1 million in cash at the end of last year, it's clear that Cresco Labs is working diligently to strength its cash position.
Regarding the company's stellar quarter, Cresco Labs CEO and co-founder Charles Bachtell said, "We grew revenue in every single one of our U.S. markets sequentially by more than 30%, with the exception of Massachusetts, where adult use was halted for part of the quarter. ... We are accelerating growth and beginning to generate substantial leverage as we scale our operations and benefit from the investments we've made over the past 12 months."
In short, the pandemic had a very minimal impact on Cresco's top and bottom lines during the period, which can't be said for other pot stocks like Aurora Cannabis and Cronos Group. Granted, the mixed status of legalization continues to be a drag on marijuana companies, but the pandemic has made the industry's winners and losers increasingly apparent. Given Cresco Labs' extraordinary financial performance and earnings growth in one of the worst economic recessions since the Second World War, it's clear that this company is solidifying its place on the list of current winners in the cannabis space.
