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2 Reasons It's Not Too Late to Buy Moderna

By David Jagielski - Dec 4, 2020 at 6:40AM

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There's more ahead than just a regulatory green light.

Vaccine stocks have been all the hype this year, as pharma and biotech companies work feverishly to come up with a way to stop the spread of the coronavirus. And Moderna ( MRNA -0.32% ) is right at the head of the pack, after announcing on Nov. 16 that its mRNA-1273 vaccine was 94.5% effective in preventing COVID-19 infection. On Nov. 30, the company announced that it was filing for Emergency Use Authorization (EUA) from the U.S. Food and Drug Administration (FDA). Shares of Moderna ultimately doubled over the month of November, going from less than $68 as of the end of October to more than $140 on Nov. 30.

However, despite the surge in price and Moderna's stock rising an astonishing 640% this year (while the S&P 500 is up 13%), it may still not be too late to invest in the company. There's a lot of reason to be bullish about Moderna right now, and while investors may want to cash out some of their gains, the stock may continue to rise even higher in the weeks and months ahead. 

Small vials labeled Coronavirus Vaccine

Image source: Getty Images.

1. Moderna hasn't earned emergency use authorization yet

The solid results from its late-stage trial are encouraging news for Moderna, but the company still needs to obtain EUA from the FDA before the party can really begin for investors. On Nov. 30, its stock jumped more than 15% on news that the company would be filing for EUA of mRNA-1273. Although technically not first to the finish line -- Pfizer ( PFE 1.35% ) applied for EUA of its vaccine days earlier -- Moderna still notched an incredible accomplishment in competing with many big companies over the world working on a vaccine, including giants like Johnson & Johnson ( JNJ -0.36% )

If Moderna's vaccine receives the EUA, and there's little reason to doubt that it will given its high efficacy rate, the stock will likely get another boost from the news. Although investors are likely pricing that approval into the stock's current valuation, news of the EUA will give the markets some reassurance that help for COVID-19 is (officially) on the way, which could lead to even more bullishness across the exchanges.

2. Results from other vaccine stocks could disappoint

Another reason Moderna's stock could continue to rise is if other COVID-19 vaccine makers aren't able to report impressive results. The vaccines from Pfizer and Moderna are more than 90% effective, and that's set a high bar for their competitors -- one well above the 50% effectiveness that the FDA was looking for. That doesn't mean that other vaccines won't obtain EUAs if their efficacy is less than Moderna's. However, it could ensure that Pfizer and Moderna's vaccines are the most sought-after. That means a larger share of the $100 billion COVID-19 vaccine market could go to those two.

Even though Pfizer and Moderna's efficacy results are similar, Moderna's vaccine still holds an advantage over Pfizer's, which needs to be stored at -70 degrees Celsius to be effective. Moderna's mRNA-1273 needs to stay at only -20 degrees Celsius.

Pfizer and Moderna's vaccines both make use of messenger-RNA (mRNA) technology, which is a relatively new approach in the industry and that means there will also be more question marks, especially when it comes to potential long-term side effects. Novavax, which has yet to release its coronavirus vaccine trial results, uses synthetic spike proteins rather than mRNA. Meanwhile, Vaxart is working on a tablet that can be administered orally.

Another vaccine maker, AstraZeneca ( AZN 0.42% ), announced positive phase 3 results in late November (a week after Moderna released its own) that its vaccine candidate was also up to 90% effective against COVID-19. But that excitement quickly subsided after questions arose about its data from a two-dose schedule: Using a lower first dosage its vaccine was 90% effective, but with a higher first dosage, that metric dropped to 62%. The company therefore reported an average efficacy of 70%. But experts aren't convinced that it makes sense to calculate the average those numbers. If AstraZeneca's vaccine does receive approval, it will offer the most efficacious dosage scheme of the treatment.

Even though AstraZeneca released encouraging numbers from its study, the ambiguity surrounding its results actually boosted Moderna's stock. After the news, AstraZeneca stock sank 3.5% on the day of trading, while Moderna rose almost 2%. The fact that AstraZeneca's results were well above FDA expectations but still led to a drop in stock price, purely because they were worse than Moderna and Pfizer's, shows that Moderna investors must pay attention to all of the race runners' results. 

Should you buy Moderna stock today?

With Moderna's stock trading at all-time highs, some investors may be reluctant to buy into the hype. There's certainly some risk given that vaccine stocks can be particularly volatile, and if more companies release positive results equal or similar to Moderna's, that could negatively impact its share price. It looks like the EUA should be as close as the company can get to a "sure thing," but if the FDA comes back with questions or it's not a smooth process, that too could trigger a sell-off of Moderna stock.

Investing in any vaccine stock -- especially those that don't yet have any other products on the market, like Moderna -- can be risky. Part of the reason is that they're smaller in size and more dependent on a successful vaccine than other, more established companies are. Here's how Moderna's stock has fared this year compared to Pfizer and AstraZeneca:

MRNA Chart

MRNA data by YCharts

Today, the healthcare stock trades at an unbelievable 160 times its sales. However, if its vaccine can generate $5 billion in annual revenue, as one Jefferies analyst is projecting, that could bring that multiple down to around 12 -- assuming its market cap remains unchanged.

That would still be more than the 1.6 times sales the average stock in the Health Care Select Sector SPDR Fund trades at. But the company's sales could also climb higher if Moderna is able to attain a greater share of the COVID-19 vaccine market, which could happen if there aren't many viable options out there or if Pfizer and other players encounter majors distribution challenges. 

Moderna isn't a stock to buy if you're a risk-averse investor, and it definitely isn't cheap; but it's poised to become a long-term leader among COVID-19 vaccine makers. While it may not grow again to the extremes that it has in 2020, there's still lots of potential for the stock to generate strong returns if you buy shares of the biotech today.

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

Moderna, Inc. Stock Quote
Moderna, Inc.
$282.49 (-0.32%) $0.91
Pfizer Inc. Stock Quote
Pfizer Inc.
$52.09 (1.35%) $0.69
Johnson & Johnson Stock Quote
Johnson & Johnson
$163.74 (-0.36%) $0.60
AstraZeneca PLC Stock Quote
AstraZeneca PLC
$55.36 (0.42%) $0.23
Novavax, Inc. Stock Quote
Novavax, Inc.
$186.00 (2.34%) $4.25
The Select Sector SPDR Trust - The Health Care Select Sector SPDR Fund Stock Quote
The Select Sector SPDR Trust - The Health Care Select Sector SPDR Fund
$133.80 (0.00%) $0.00
Vaxart, Inc. Stock Quote
Vaxart, Inc.
$6.48 (-1.22%) $0.08

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

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