In my view, the two cheapest areas of the stock market are crypto stocks and biotechs fighting COVID-19. Mr. Market says these sectors are dead, so these stocks are priced to sell.
I hope I'm wrong, but I think COVID will strike again this winter -- just like it did in the winter of 2020 and the winter of 2021. So, now is a great time to buy the biotechs that are fighting this virus. My two favorites are Novavax (NVAX 4.70%) and Vir Bio (VIR 2.30%).
And I'm confident that over the long term, crypto will retake its highs and go higher. The cheap stock I'm seeing in this area is Coinbase Global (COIN -4.65%).
Novavax: P/S is 2, P/E is 2
Novavax has been a wild ride for investors, and it continues to surprise. A few years ago, the stock was $4 a share. Then it hit $330. Then it crashed all the way to $35 a couple of weeks ago. Now it's $70. What's going on with Novavax stock?
We're all waiting for the biotech's COVID-19 vaccine to hit the American market. COVID-19 appears to be a seasonal virus -- winter is when we see the most hospitalizations. This virus mutates, so annual vaccinations may be in the future. I plan to vaccinate again before winter hits. I'm hopeful that Novavax's COVID vaccine will finally be on the market before then. Novavax got a unanimous nod (with one abstention) from an FDA panel for its vaccine candidate, so I'm expecting the drug to hit the U.S. market pretty soon.
Regardless, Novavax has already gotten vaccine authorizations from 170 countries around the world, and that's where most of its revenue will show up. The company is guiding for over $4 billion in sales this year. The market is suspicious because of manufacturing delays last year. But this is a great vaccine, and the stock is super-cheap right now.
Vir Bio: P/S is 2, P/E is 3
One reason I like Vir Bio is that the biotech has a lot of optionality. It's not just a pandemic fighter (like Novavax) -- it's fighting against any number of infectious diseases, including hepatitis B. When Vir had its initial public offering (IPO) in 2019, I wrote that "Vir Biotechnology is unprofitable, and it will be years before the company sees any profits."
Three years later, Vir has 52% profit margins and 62,000% revenue growth. All this surprising money is flowing from its COVID treatment, sotrovimab. Thanks to this drug, Vir had $2 billion in revenue over the past year.
Unfortunately, the FDA recently pulled its emergency use authorization (EUA) for the company's COVID treatment; Vir hasn't proven yet that it works against the Omicron variant. So right now, Vir's drug is still being sold overseas, but not in the U.S.
Without those U.S. sales, investors will likely see a decrease in Q2 revenue from Q1. (Although, of course, still a massive increase from a year ago). Vir is now testing whether higher doses of sotrovimab works on the Omicron variant, so it's possible the EUA might be reinstated later this year.
Regardless, I'm confident that Vir will find drugs to combat any future COVID variants, just like it found an effective treatment for the original strain. And thanks to its COVID treatment, Vir now has a fat bankroll that is funding its other research and development. This biotech stock has been de-risked, in my opinion.
Coinbase: P/S is 2, P/E is 4
Coinbase is a top dog and first mover in the crypto industry. It's one of the leading crypto exchanges in the world. Coinbase stock just came public last year via a direct listing. At the time, the stock was valued at $85 billion.
Since then, the entire crypto industry has been in free-fall. And Coinbase's market cap has dropped to $14 billion. Is the sky falling? Is crypto dead? Nah. While Coinbase is new to the public markets, the company has been around since 2012. Coinbase is immensely profitable with 33% profit margins and $7 billion in revenue over the last year.
To me, the fall in Coinbase stock is almost perfectly correlated to the overall fall in the crypto markets. And we can see this by looking at some charts. The first and most famous crypto, Bitcoin (BTC -0.08%), has had several peaks and valleys in its price. So this crypto volatility is nothing new. Bitcoin crashed in 2018. Then it soared and crashed and soared and crashed again. But the overall trend for the original cryptocurrency is up and to the right.
Coinbase stock has only been public for a little over a year, so we don't know yet what its five-year chart will look like. But what is kind of fascinating is to compare the Coinbase stock chart with the price of Bitcoin. You'll see that the top crypto broker and the price of Bitcoin really seem to sync up.
These charts coincide right now because the most popular virtual coin at Coinbase is still Bitcoin. But I expect this to change over time, and the charts will diverge. That's because Coinbase is where you go to find an entire universe of crypto that is not Bitcoin (aka altcoins). At Coinbase you can buy not just Bitcoin, but also Ethereum (CRYPTO:ETH), Solana (CRYPTO:SOL), Cardano (CRYPTO:ADA), and over 100 other forms of cryptocurrencies.
What Coinbase is doing is actually pretty hard. You see, every crypto coin has a blockchain technology that supports it. To list a coin for sale, Coinbase has to solve serious technical issues. You can't just list a coin for sale. These are virtual assets and you have to build out the technology. So while I think stock brokerages like Charles Schwab (NYSE:SCHW) will one day sell Bitcoin, and maybe a few other coins, Coinbase has a huge advantage (and a big moat).
In my view, investors should think of Coinbase as a trusted agent. Coinbase is simplifying the crypto universe, educating people, and facilitating increasingly more involvement. And this goes far beyond shopping for altcoins. People will likely use Coinbase to buy non-fungible tokens (NFT) and farm for yield (i.e., make money off your crypto). An investment in Coinbase is an investment in the rise of crypto overall.
So while Bitcoin is making all the headlines now, the really big money will be made in the rest of the blockchain universe, with incredibly fast peer-to-peer networking, non-fungible tokens, and decentralized finance. And if you dive into crypto, it's likely Coinbase will be your partner and guide.