COVID-19 radically changed the investing landscape last year -- not to mention the world. Some stocks did really well in this environment like vaccines and diagnostics on the healthcare side, as well as internet companies and other stay-at-home stocks. Hopefully, the U.S. (and the rest of the world) will vaccinate its way out of this mess, and life will return to some semblance of normality. When this happens, some stocks will continue to surge higher, while others are likely to fall back.
We've got a roundtable of Fool.com contributors sharing their opinions about which COVID stocks are now dangerous. George Budwell thinks Fools should avoid Inovio (INO -7.86%) with its $2 billion market cap. Patrick Bafuma thinks high-flying Novavax (NVAX) is about to take a hit, while Taylor Carmichael argues that investors might want to take profits in $33 billion Peloton (PTON -0.97%). Read more to find out why they hold these views.
image source: Getty Images.
1. Too late?
George Budwell (Inovio): I wouldn't necessarily call Inovio Pharmaceuticals a "scary" COVID-19 vaccine stock. But the biotech's prospects in this arena aren't all that compelling, either.
The backstory is that Inovio was one of the first companies to roll out a conceptual design for a COVID-19 vaccine in early 2020. This concept, in turn, became reality in the form of the biotech's lead COVID-19 candidate -- INO-4800. At present, INO-4800 is close to entering a global phase 3 trial dubbed INNOVATE in countries outside the United States. Top-line data from this all-important trial ought to be available sometime in early 2022.
The core problem facing Inovio and its shareholders is that Pfizer, Moderna, Johnson & Johnson, among others, have all beaten the company to the punch by bringing their respective COVID-19 vaccines to market in record time. INO-4800's commercial opportunity is thus shrinking by the day. In fact, there's a chance that there may not even be a viable niche left for INO-4800 by the time it gets approved in either the U.S. or abroad. That's not a foregone conclusion of course, but the vaccine's latecomer status is likely to limit its utility in the fight against the pandemic.
What's the key takeaway? Inovio's novel DNA-based medicine platform may yet provide some form of unique protection against COVID-19. Time will tell. But the reality of the situation is that Inovio is probably too late to grab a significant chunk of this market. So, if you're looking for a COVID-19 vaccine stock to buy, it might be best to cross this name off your watchlist.
2. A History of failure
Patrick Bafuma (Novavax): When someone shows you who they are, you should pay attention the first time. That is why I'm avoiding Novavax.
There are two traits I look for in early stage biotech and med-tech companies: good ideas and even better management. Excellent leadership that has come together to guide a smaller biotech company piques my interest. Unproven companies with unproven leaders I find much riskier. It's about minimizing my downside.
Take Moderna, for instance. Its CEO Stéphane Bancel was the CEO of medium-cap French medical diagnostics company bioMérieux SA and a director at heavyweight Eli Lilly. Moderna's Chief Technical Operations and Quality Officer Juan Andres was previously the global head of technical operations for Novartis. Dr. Paul Burton, Moderna's chief medical officer, was the chief global medical affairs officer of Janssen Pharmaceuticals.
Stanley Erck, president and CEO of Novavax, has been with the company since 2011, hails from IOMAI, a biotech company, as does Greg Glenn, president of research & development for Novavax. Rick Crowley was appointed chief operations officer after leaving TerSera Therapeutics. If you haven't heard of IOMAI or TerSera, that's the point -- I want leadership that has performed at a high level with larger companies.
I readily admit Novavax has had a meteoric rise-up just under 19 times from March 1, 2020. But if you have been investing in biotech for the last ten years, this was probably predictable. In the summer of 2009 when the H1N1 flu started up, Novavax capitalized for investors but failed to deliver a meaningfully useful vaccine. With the outbreak of Middle East respiratory syndrome (MERS) in early 2012, the now 33-year-old biotech without a product was there. And it's not just the latest pandemic that Novavax has whiffed on-- the company swung and missed hard for a respiratory syncytial virus (RSV) vaccine too.
While this $19 billion market cap vaccine-maker hopeful paints a rosy picture of its COVID future, seasoned investors have seen this story before. Spoiler alert: Investors late to the party often held the bag until this company would fall back into penny stock land. Over the last 20 years, I've witnessed Novavax throwing its technology at the latest pandemic and a few other diseases too. All unsuccessfully. Why should COVID-19 be any different?
3. The reopening might crash this one
Taylor Carmichael (Peloton): Peloton has been a great stock for Fools since the pandemic hit. The stock started off 2020 with a share price of $29, closing out the year at $155. That's a nice 5-bagger in a year. I'm negative on this stock going forward, and I'd suggest getting out of this name and maybe investing in Planet Fitness (PLNT -1.18%) instead.
Right now, Peloton has nice numbers, including 140% revenue growth in the most recent quarter. But health club operator Planet Fitness has even nicer numbers, growing sales 250% in its most recent quarter.
I'm doubtful that Peloton can keep zooming higher as the pandemic winds down. Its stationary bike can cost $2,000 or more, and its treadmill is even more expensive. I believe this is a niche product for health-conscious upscale people. Buying a treadmill in particular seems an expensive proposition when people can walk for free.
Since its initial public offering (IPO) in 2019, Peloton stock has crushed Planet Fitness and the market. The lockdown has closed off a lot of gyms, causing people to exercise at home. That's a temporary shift in behavior that will likely revert once our society gets back to normal. Most people wanting to stay fit will go back to biking in the great outdoors or taking a spin class at the gym.
Peloton has a lot of subscriptions in its business model. Fools love to see those repeating revenues. So if Peloton can get to a level where large numbers of people have bought the equipment, it will be a safer stock. Right now, however, about 20% of their revenues comes from subscriptions. The vast majority of its sales comes from new people paying for the equipment.
I suspect that Peloton has already grabbed most of the low-hanging fruit during the COVID lock-down. I expect to see Peloton's growth rates slow, maybe even decline, in the years ahead. At a $33 billion market cap, that's a long way to fall.
