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How Should Investors Play COVID-19 Stocks?

By Brian Orelli, PhD - Oct 19, 2020 at 3:02PM

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Treatments, vaccines, or both?

In this Fool Live video, Healthcare and Cannabis Bureau Chief Corinne Cardina and longtime Motley Fool contributor Brian Orelli talk about the best way for investors to take part in the potential growth in revenue from companies developing treatments and vaccines for COVID-19, the disease caused by the novel coronavirus. They talk about how much competition there will be among drugmakers. And they go over whether treatments or vaccines have a better potential for long-term revenue.

Corinne Cardina: Let's talk about this from an investing standpoint. We've gone over all these companies, what they are, what they're doing. How should investors think about playing the COVID-19 treatment field? Is this a winner-take-all market or do you think there's room for multiple winners?

Brian Orelli: I think there's room for multiple winners within each category. I think it's probably less likely that somebody is going to get Regeneron's ( REGN 0.18% ) antibody plus Eli Lilly's ( LLY -0.93% ) antibody, although in theory, maybe they're binding into different spots that the combination might work. But in terms of different classes, so an antibody versus the antiviral, and then within the antivirals, there's probably more than one way to stop the replication. Just like with HIV, patients get a cocktail of antiviral drugs. I think that'll be the same setup here.

Corinne Cardina: Yeah, definitely. Would you say it could work to buy a basket of all these different stocks with a potential treatment or some similar diversification strategy? I think that's going to be key here. You definitely don't want to put all your eggs in one of these baskets.

Brian Orelli: Yeah, I think it's a good idea in theory, but you have to worry about overvaluation. You have to make sure that the potential revenue from whatever treatment it is is going to be justified whatever valuation bump they've gotten since the pandemic started. You just can't go buying willy-nilly. I think also, you have to be really careful not to ignore the rest of the pipeline, because hopefully the pandemic is going to go away at some point, maybe it's a year, maybe it's two years, but I think they will have to go back to the same pipeline they were working on before and hopefully continuing to work on through the end of it. So I think that you have to be really careful that you're evaluating companies based on their entire pipeline, not just on their coronavirus place.

Corinne Cardina: Yeah, definitely. Everyone has been talking about the vaccine development. We are watching studies happen, data come out every so often. I think we'll have some near-term catalysts here in the next couple of months. So I think the question for investors are, is your investing money better spent on stocks that have vaccine candidates in phase 3 trials compared to these companies that have treatments that may or may not have emergency-use authorizations?

Brian Orelli: Yeah. I think there's more opportunity for the vaccines than there is for the treatments in theory because if a vaccine works, there should be less use for treatments. I think there's a greater opportunity to sell billions of dollars in vaccines versus billions of dollars for treatments. The issue is going to be how long the vaccines will last. Most of them are two shots, so you're going to get two shots and then you're protected for the rest of your life or five years or 10 years or just a year.

If it's just a year, then the vaccine makers are probably undervalued right now. If it's one and done, I think they're probably overvalued right now. I think that it's hard to justify the valuations -- we're talking about Moderna ( MRNA 1.74% ) and BioNTech ( BNTX 3.17% ). Those two I think are probably too high a valuation to justify based on one and done, especially if more than one company comes out, or two or three companies come out at the same time, so they don't get the full market opportunity. They get half or a third. That'll really cut into the total sales.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Eli Lilly and Company Stock Quote
Eli Lilly and Company
LLY
$245.58 (-0.93%) $-2.30
Regeneron Pharmaceuticals, Inc. Stock Quote
Regeneron Pharmaceuticals, Inc.
REGN
$635.16 (0.18%) $1.16
Moderna, Inc. Stock Quote
Moderna, Inc.
MRNA
$306.72 (1.74%) $5.23
BioNTech SE Stock Quote
BioNTech SE
BNTX
$344.06 (3.17%) $10.57

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

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