Investing in businesses that will benefit from COVID-19 products, including vaccines, can be incredibly risky. A lot depends on the state of the pandemic and whether things will get better or worse.

Two such stocks that have enjoyed incredible success over the past two years are Moderna (MRNA -5.38%) and Novavax (NVAX 12.02%) -- they've both soared more than 700%. But in the past three months, the two have been falling sharply, losing more than 30% of their value as uncertainty about the omicron variant has weighed on the markets.

Their declines have been similar. However, as long as the pandemic is around, there's significant potential for these two stocks. But which one is the better buy?

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The case for Moderna

Moderna's COVID-19 vaccine is currently fully approved for use in the U.S. in people who are at least 18 years of age. That adds credibility to the vaccine and could potentially calm any fears around using it, as full approval indicates that the Food and Drug Administration (FDA) has done a more thorough review of the vaccine. Previously, the vaccine was only approved under an Emergency Use Authorization (EUA).

Moderna has already been generating billions of dollars from its vaccine -- through the first nine months of 2021, its sales have totaled a little less than $11.3 billion. A year ago, it brought in just $232 million. Plus, it has posted a profit of $7.3 billion on all that revenue, which is more than 65% of its top line.

Thanks to the company's strong numbers, Moderna has also generated $11.4 billion in free cash flow over the past 12 months. One big question facing the company is what it will do with all that money. That's never a bad problem to have and could help lead to greater growth opportunities down the road for the business.

Although the company has dozens of projects in its pipeline, it will be a challenge to replace the lost COVID-19 vaccine revenue once the pandemic is over. Having a good chunk of cash on hand, therefore, is going to be vital to reinvest back into the business or pursue acquisitions.

Trading at a price-to-earnings (P/E) ratio of 10, Moderna's shares are cheap, compared to the average healthcare stock in the Health Care Select Sector SPDR Fund, which trades at 23 times its profits. 

A person receiving a vaccine from a nurse.

Image source: Getty Images.

The case for Novavax

If Novavax's COVID-19 vaccine obtains EUA in the U.S. market (it formally submitted its request on Jan. 31), it could give Moderna's vaccine some serious competition. Some people may be inclined to take a vaccine that's fully approved, versus one that only has an EUA, given that more than 75% of the U.S. population has already received at least one dose of a vaccine. But that doesn't appear to be a huge impediment.

For the subset of the population who are still sitting on the sidelines, Novavax's vaccine could be a more attractive option. The mRNA vaccines from Moderna and Pfizer have a higher risk of myocarditis (inflammation of the heart muscle) -- a risk that wasn't evident when people were first receiving doses. Although it's not a significant risk overall, it could sway people who aren't sold on mRNA or had side effects from those vaccines. Novavax doesn't use the relatively newer mRNA technology and relies on a more conventional approach involving nanoparticles.

The company's CEO, Stanley Erck, sees the potential for the Novavax vaccine to appeal to people who are hesitant to take the approved vaccines out there today, providing them with a safe alternative. And with booster shots being administered and the FDA saying that mixing and matching of vaccines is OK, people who took a Moderna or Pfizer dose can get a booster with Novavax (assuming, of course, it obtains EUA).

Other countries have granted emergency approval for Novavax's COVID-19 vaccine already (the European Commission gave it the green light in December 2021), but the potential approval in the U.S. market is what many investors are excited about. The company says it will be ready to ship 100 million doses upon receiving the authorization.

Grants and funding, including money from Operation Warp Speed to help develop the vaccine, have made up most of the company's revenue thus far, with Novavax's sales for the first three quarters of 2021 totaling $924 million. That's nearly five times the $196 million it generated over the same period a year earlier. During the nine-month period ending Sept. 30, 2021, Novavax has incurred a loss of $897 million. However, obtaining EUA could change the company's prospects for profitability and boost its top line, just like the authorization did for Moderna.

On a forward P/E basis, analysts expect Novavax will actually be the cheaper stock, trading at a multiple of three times future earnings versus nearly six times for Moderna.

Which investment is the better buy?

When it comes to COVID-19 stocks, managing risk is important. And with approval already under its belt and billions in free cash flow, Moderna is the safer buy today.

Novavax is generating free cash, but its tally is much more modest at $593 million in the past 12 months. And although its shares may jump upon receiving EUA, that's by no means a sure thing, and failure to obtain it will likely result in a steep sell-off. That's why, at least for now, Moderna holds the edge and is the stock that's more likely to recover from its recent decline.