The last time COVID-19 crashed the market, the stocks you really wanted to own were small biotech companies fighting the virus. What if history repeats itself and COVID-19 spikes the market again? The same stocks might soar higher yet again. Or perhaps the market will veer in another direction, and a different group of stocks will rise to the top.
1.) Moderna: Safety through innovation
George Budwell (Moderna): With a market cap of $173 billion at the time of writing, this therapeutic company and producer of the messenger RNA vaccine is easily one of the most valuable biopharmas in the world. The biotech's stately valuation, however, has recently drawn significant criticism from various analysts and industry insiders.
The main reason is that Moderna has only one approved product on the market with its COVID-19 vaccine, and that product is widely expected to experience a sharp drop off in sales starting as soon as next year. In effect, the company's present valuation appears to reflect a rather enthusiastic take among investors for the future of its mRNA vaccine and drug-development platform rather than its underlying fundamentals or even its near-term outlook.
To put this valuation issue into the proper context, Wall Street's current consensus estimate has Moderna's shares trading at an astronomical 22.1 times 2023 revenue. Most of the biotech's closest peers, by contrast, trade at under 3 times 2023 estimated sales. This high-flying biotech stock, in turn, doesn't exactly jump off the page as a bastion of safety. But that's where conservative investors might be dead wrong.
The crux of the matter is that Moderna could very well be poised to utterly change the biopharma game with its mRNA platform. The company already has the main components of its next megablockbuster vaccine in the clinic: a customizable, pan-respiratory annual booster vaccine for COVID-19, influenza, and respiratory syncytial virus. And Moderna is rapidly branching out into several other high-value areas such as HIV, immunotherapy, and regenerative medicine.
Bear market or not, Moderna's stock should continue to perform admirably for the foreseeable future thanks to its laser-like focus on innovation.
2.) A safe COVID stock that's growing like crazy
Taylor Carmichael (Regeneron): Regeneron has been a huge winner for Fools. In fact, it's almost a 10-bagger stock now. Surprisingly, however, the stock has underperformed the market over the last year, which has made the stock incredibly cheap.
Regeneron stock has a price-to-earnings (P/E) ratio of 11, which is very low for a biotech company with 50% profit margins and 163% revenue growth rates. Growth investors might be shying away because the company is already very large, with a $69 billion market cap. And many value investors might not be interested because the stock doesn't pay a dividend yet. So maybe Regeneron's stock is falling through the cracks of the stock market, which makes the stock a steal for investors who are paying attention.
Regeneron has three blockbuster drugs on the market right now, each one pulling in over $1 billion in revenues in the most recent quarter. The company's eye medication, EYLEA, brought in $2.3 billion in revenues in the quarter. And its respiratory drug, Dupixent, added another $1.5 billion to the company's top line in three months. But it's the company's COVID medication, REGEN-COV, that is really rocking right now. It brought in $2.6 billion in the quarter. Without the COVID therapeutic, revenue growth would have been only 22%.
While vaccination is still the best bet for defeating the virus, it's possible that large numbers of Americans will refuse to be vaccinated. And it might be politically risky to try to mandate vaccination. That's perhaps why the Biden administration recently made a deal to acquire another 1.4 million doses of REGEN-COV, according to The Washington Post. The therapy has been a life-saver, and the federal government has decided to start stocking up on the drug for future needs.
Unlike the vaccines, the antibody cocktail is highly expensive, costing $2,100 a dose. So Regeneron was paid $2.9 billion. And yet the stock market yawned at the news. In fact, the stock price has dropped another 2% over the last week. But sooner or later, Mr. Market will notice how well this company is doing right now.
3.) A bear market may eat everything except Figs
Patrick Bafuma (FIGS): Should COVID wreak even more havoc and potentially cause another round of lockdowns in the U.S., luxury medical outfit designer Figs may stand to benefit.
COVID-19 has taken a toll on the mental health of some stalwart humans working within the confines of a hospital. Face it, many of us believe in retail therapy, so in a way Figs is treating those who treat us. And there are certainly less healthy options than splurging on a pair of designer scrubs.
The stylish apparel maker may have raised some concerns with a deceleration of revenues in the second quarter, but revenue growth of 58% year over year is nothing to sneeze at for a clothing company. Its aspiration to become a $1 billion-plus net revenue global brand by 2025 only equates to about 35% annual growth. But that's the kind of growth I'll take through any bear market, especially for a company that has only penetrated 3% of a $12 billion U.S. healthcare apparel market and has enviable brand loyalty, with 50% of customers coming back and buying again within 12 months.
Figs is becoming an iconic brand with a loyal following akin to Apple (NASDAQ: AAPL), Tesla (NASDAQ: TSLA), Nike (NKE -2.30%), and Lululemon (LULU -1.68%) -- not shabby company. The athleisurely Lululemon has seen its stock price grow more than 5 times since 2018 despite growing revenues less than 25% annually during the same time frame. Ditto the Just Do It brand, which has seen its share price grow north of 150% since 2018 with less than 20% revenue growth annually since 2018. Both handily beat the S&P's return of about 67% during the same period. So, despite what may look like average projected growth, Figs appears to be lined up to provide market-beating returns over the coming years.
For those who take care of others and wish to embody a look-good, feel-good mentality, Figs is the lifestyle brand of choice. And given the salaries for locum doctors and nurses who accept temporary placements, it seems like there may be quite a bit of disposable income to throw around. The world needs frontline COVID-19 fighters right now, and Figs is outfitting them.