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Should You Buy These 3 Stocks Leading the Dow Jones Higher?

By James Brumley - Dec 3, 2020 at 9:04AM

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There's lots of hype behind the hope, but investors' timeline assumptions may be wildly optimistic.

The Dow Jones Industrial Average has been firing on all cylinders of late, soaring more than 12% in November to offset losses logged over the course of September and October. This bullishness wasn't distributed evenly among the Dow's 30 constituents, however. Boeing ( BA -0.33% ), Chevron ( CVX -1.72% ), and American Express ( AXP -3.52% ) gained 47%, 31%, and 26% over the course of November, leading the index's upward charge.

They're seemingly unrelated companies. But, there is a common thread -- they're big beneficiaries of an economy that can finally put the coronavirus pandemic in the rearview mirror. Pfizer and BioNTech as well as Moderna unveiled effective vaccines this past month, and even AstraZeneca's coronavirus vaccine still holds promise. The world may be able to get back to "normal" soon enough. Meanwhile, Boeing's beleaguered 737 MAX passenger jet should be taking to the skies again soon.

Investors looking to cash in on these hot blue chip stocks, however, might want to look elsewhere. While a COVID-19 vaccine may well be on the radar, it's going to take a lot more time to finalize, reproduce, and distribute it wherever it's needed. A lot could still take shape to undermine these consumer-minded stocks again.

Man's hand plotting a rising red arrow line above two blue arrow lines.

Image source: Getty Images.

A light at the end of the tunnel

There's no denying a sense of hope has finally taken shape...for good reason. Pfizer's and BioNTech's jointly-developed BNT162b2 is 95% effective at preventing COVID-19 infections. Moderna's vaccine able to stave off the contraction of the disease nearly 95% of the time. AstraZeneca's AZD1222 is only about 70% effective, but the company says it can produce 200 million doses of it before the end of the year. That's a whole lot more than any other coronavirus drug developer could deliver in 2020.

Investors responded to the news by bidding up many of the names that have been beaten down so badly this year.

Take Chevron as an example. Its shares lost more than half their value between mid-February and March's low (in step with crude oil's price meltdown), with investors correctly predicting lockdowns would crimp demand for automotive fuel. Chevron shares bounced briefly in the latter part of March, but started to slide lower again all the way through late October as the COVID-19 contagion spread.

Pfizer's vaccine news on Nov. 9 seemingly changed everything for Chevron and its peers. As fellow Fool contributor Matthew DiLallo commented that very day, "Fueling the surge in big oil stocks is the hope that this vaccine signals the beginning of the end for the global pandemic that has killed more than 1 million people while wreaking havoc on the global economy." News from Moderna and AstraZeneca only fanned those bullish flames.

Consumers and corporations won't be buying more gasoline (or diesel fuel) for no reason though. As Fool contributor Matthew Frankel also noted on Nov. 9, a successful COVID vaccine will help curb unemployment, which in turn not only drives more consumer spending, but reduces credit loan delinquencies. Fears of both were a key reason American Express stock has underperformed for most of this year, and understandably so. The credit card company's top line was lower to the tune of 20% year over year for the quarter ending in September, driving nearly a 40% plunge in profits thanks to a spending headwind that may soon abate.

As for Boeing, with demand for air travel shrinking to minimal levels this year and no clarity as to when the pandemic may end, few airlines were interested in ordering new passenger jets; some even cancelled previous orders. The company's continued woes with its 737 MAX haven't helped either. A COVID-19 vaccine puts an end to this tepid travel interest in sight. Bolstering Boeing's 40% gain over the past few weeks is the recent re-clearance of the beleaguered 737 MAX. In fact, American Airlines, just put the aircraft back into use.

Point being, on the surface the big gains make sense, particularly in that they follow outsized sell-offs.

Time works against these gains

Investors appear to be celebrating the bigger picture while ignoring details that matter, however.

Chief among those details is the time it will take to meaningfully distribute a vaccine. AstraZeneca says it can produce 200 million doses before the end of the year, but for perspective, there are 63 million active (known) coronavirus cases worldwide right now, and around 7 billion people living on the planet. Still, that's better than Pfizer/BioNTech's BNT162b2. The two companies indicate they can only make 50 million doses before the end of the year. Moderna will only be able to deliver 20 million in 2020.

The Pfizer/BioNTech vaccine as well as Moderna's present wrinkles beyond limited availability too. Both must be stored at very cold temperatures, and Pfizer's version of a vaccine must be stored at a stunning negative 70 degrees Celsius (negative 94 degrees Fahrenheit) all the way from the production lab until it's administered. The pharmaceutical distribution chain just isn't set up for handling that much super-cold-stored medicine. It will take a top-down revamp of the industry's logistics capabilities to use this vaccine, and that takes time.

Patience will be required

The timeline for widespread rollout of these vaccines isn't being measured in days. It's being measured in months, and the people most likely to get the very first doses (doctors, first responders, etc.) aren't the same consumers that companies like Chevron and American Express most need to be protected.

Indeed, it's conceivable that lockdowns will be reinstated in the near future despite the promise of proven vaccines in the future. A little disappointment could easily quash these gains once investors realize much of the world is still locking themselves in at home.

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

The Boeing Company Stock Quote
The Boeing Company
$197.85 (-0.33%) $0.65
Chevron Corporation Stock Quote
Chevron Corporation
$112.87 (-1.72%) $-1.98
American Express Company Stock Quote
American Express Company
$152.30 (-3.52%) $-5.56
AstraZeneca PLC Stock Quote
AstraZeneca PLC
$54.83 (-1.26%) $0.70
Pfizer Inc. Stock Quote
Pfizer Inc.
$53.73 (2.54%) $1.33
American Airlines Group Inc. Stock Quote
American Airlines Group Inc.
$17.69 (-0.28%) $0.05
Moderna, Inc. Stock Quote
Moderna, Inc.
$352.43 (-4.36%) $-16.08
BioNTech SE Stock Quote
BioNTech SE
$351.74 (-2.97%) $-10.78

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

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