It nearly seems like a distant memory now, but the stocks of COVID-19 vaccine makers were once sizzling hot. In 2020, shares of Novavax (NVAX 4.05%) skyrocketed 2,700%. Moderna (MRNA 1.22%) stock more than quadrupled that year and soared even more at one point in 2021.
But the sizzle fizzled in the latter part of last year. Although COVID cases surged in the U.S. and other countries due to the omicron variant, investors looked forward to what they hoped was the beginning of the end of the pandemic.
However, there are now indications that those hopes could be premature. Is it time to buy COVID vaccine stocks again?
Image source: Getty Images.
Two reasons to buy
There are two primary reasons investors might want to buy vaccine stocks right now. And those reasons are intertwined.
First, many of the top vaccine stocks trade at low valuations. For example, shares of Novavax have a forward price-to-earnings multiple of 2.8. BioNTech's (BNTX 0.83%) forward earnings multiple is less than 4.2. Moderna's shares trade at barely over five times expected earnings.
Even Pfizer (PFE 0.63%), which doesn't depend exclusively on its COVID vaccine for revenue, looks cheap. The pharma giant's shares currently trade at roughly 7.8 times expected earnings.
Second, it's looking like the demand for COVID vaccines won't diminish anytime soon. This is important because those valuation metrics are largely meaningless if vaccine sales are about to fall off a cliff.
China is experiencing its worst coronavirus outbreak since 2020. COVID cases are rising in Europe. Wastewater samples hint that another wave could be on the way in the U.S. as well. Meanwhile, both Pfizer and Moderna have requested authorization for fourth doses of their vaccines.
Uncertainty lingers
The higher numbers of COVID cases in various parts of the world are the biggest reason vaccine stocks have rebounded in recent days. Moderna soared nearly 30% last week; BioNTech wasn't far behind.
However, there's still quite a bit of uncertainty about the future demand for COVID vaccines. The number of doses that vaccine makers sell will almost certainly fall with fewer people remaining to receive the two-dose primary series.
In the U.S., the federal government has picked up the tab for COVID vaccines so far. But what will happen if and when the government backs out of the picture? It's possible that the demand for the vaccines would decline significantly in that scenario.
We can't overlook the threat from innovation, either. If annual COVID boosters are needed, companies that develop safe and effective combination vaccines could steal market share from rivals that don't.
My answer
My answer to our initial question threads the needle a bit. I don't think it's time to buy COVID vaccine stocks as a group. But I do think that certain individual stocks look attractive.
Some COVID vaccine stocks are much riskier than others. For example, Ocugen (OCGN 5.08%) no longer has a viable path to gain U.S. Emergency Use Authorization for Covaxin. By the time the company could potentially win full U.S. approval for the vaccine, the dynamics of the market could be much different than they are now.
On the other hand, I'm quite bullish about Pfizer's prospects. The company projects $32 billion in sales of Comirnaty, the COVID vaccine it markets with BioNTech. That total doesn't include any additional U.S. orders, though. I expect that the federal government will purchase more doses of Comirnaty for 2023.
Pfizer also has other growth drivers, notably its COVID pill Paxlovid. The company's 2022 guidance called for Paxlovid sales of $22 billion. My view is that the actual sales total will be a lot higher.
I also like that Pfizer is putting its quickly expanding cash stockpile to work. The big drugmaker made several key acquisitions over the past 12 months that hold the potential to fuel future growth.
Not every COVID vaccine stock will flourish over the long term, but some will. I think Pfizer will be in that latter group.
