I'm going to tell you something that might seem contradictory. Recently (last week, actually), I wrote about the one stock I'd buy if I could only buy one coronavirus vaccine stock. That stock is Johnson & Johnson. Now for the seeming contradiction: My best coronavirus stock pick for 2021 isn't Johnson & Johnson.

It's not just that my previous focus was limited to coronavirus vaccine stocks -- a more limited group than coronavirus stocks. If I could only buy one stock of any category, I'd go with the safest choice that's unlikely to lose money. Hence the selection of J&J. But my benchmark for choosing the best stock of any category is to select the one that offers the most attractive overall risk-reward proposition. There's a significant difference between those two perspectives.

So which stock is my best coronavirus stock for 2021? I like Novavax (NVAX -1.77%) because of its compelling risk-reward profile.

Vaccine vials forming a dollar sign

Image source: Getty Images.

Potential risks

Let me first acknowledge that Novavax is quite risky. As such, it's not the kind of stock that will appeal to some investors. 

Novavax's risks are basically the same ones that all clinical-stage drugmakers face. The company's pipeline candidates could flop in clinical testing. These candidates might not win regulatory approvals. Even if they secure regulatory approvals, they could achieve less commercial success than hoped. If these risks become reality, it can sink small biotech stocks.

Just how significant are these specific risks for Novavax? The company has two lead pipeline candidates -- flu vaccine NanoFlu and COVID-19 vaccine NVX-CoV2373. NanoFlu has already sailed through late-stage testing. Novavax should soon report results from a U.K. late-stage study of NVX-CoV2373 and kicked off a late-stage study of the vaccine in the U.S. and Mexico at the end of 2020.

My view is that the probability of an outright failure with either of the late-stage studies of Novavax's COVID vaccine are pretty low. I also think that the prospects of both of the biotech's lead candidates winning U.S. Food and Drug Administration approval (or initial emergency use authorization for NVX-CoV2373) are very good. Historically, close to three out of four experimental vaccines that make it to late-stage testing go on to win FDA approval. 

I suspect the bigger risk for Novavax is that its two vaccines aren't as successful in the marketplace as investors hope. However, that risk is mitigated to some extent for NVX-CoV2373 because Novavax already has supply deals lined up for close to 300 million doses. 

Potential rewards

While Novavax's risks are real, so are its potential rewards for investors. Some investors have already been rewarded handsomely with the biotech's shares skyrocketing 2,700% last year. But Novavax could have more room to run.

Let's assume that the company reports great late-stage results for NVX-CoV2373. Novavax hasn't revealed all of the financial details of its supply agreements, so we don't know exactly how much it could be set to make if its COVID vaccine wins emergency use authorizations (EUA) and approvals. However, Bernstein analyst Ronny Gal projects that NVX-CoV2373 will generate sales of $3.8 billion this year.

What we don't yet know is how long the duration of protection against infection will be for NVX-CoV2373 or other coronavirus vaccines. The answer to this question will impact the annual revenue going forward that Novavax might make. It's quite possible, though, that the biotech will make close to $2 billion annually (and perhaps more than that) from its COVID vaccine for years to come.

Don't forget about NanoFlu. Some analysts predict peak sales of around $550 million. But more optimistic analysts think the flu vaccine's efficacy could enable it to achieve peak annual sales of around $1.7 billion.

Novavax is also exploring the potential to combine NVX-CoV2373 and NanoFlu for post-pandemic use. If COVID-19 ends up requiring annual vaccination, a combo flu/coronavirus vaccine could be a big commercial success.

Best overall

Despite its massive gain last year, Novavax's market cap remains below $8 billion. That's only a fraction of the size of Moderna and BioNTech, both of which have already secured EUAs for their coronavirus vaccines.

There are bigger companies than Novavax that don't have as much risk but also don't have as much upward potential. There are smaller companies that could have greater upside potential but are much riskier because their pipeline candidates are still in early stage clinical testing. With its two largely derisked late-stage vaccines and its relatively low valuation, I think Novavax offers the best overall risk-reward proposition -- and that's why it's my top coronavirus pick for 2021.