Some companies offer you plenty of earnings visibility -- even if their shares slip in the near term, you're pretty confident they'll gain over time. You'll want a lot of these stocks in your portfolio. But if you're comfortable with risk, you may want to add another sort of player to the mix: innovative companies that have hit some roadblocks, but may have a shot at success.
Right now, Novavax (NVAX 2.79%) and Vaxart (VXRT 1.78%) are in this situation. Both were favorites in the early days of the coronavirus vaccine race. Today, though, they've had to cut costs and shift strategies after falling behind. These two stocks carry a great deal of risk, but their upside could be tremendous. Let's check them out.
1. Novavax
Novavax shares soared more than 2,700% back in 2020. The government invested in the development of the company's coronavirus vaccine candidate -- and investors bet on it quickly entering the vaccine market. But the program fell behind and Novavax won authorization more than a year after leaders Pfizer and Moderna. That meant it missed out on the biggest opportunity for vaccine revenue.
To make matters worse, in recent times, the company questioned its own ability to continue if certain uncertainties persist. For instance, Novavax may miss out on some government funding -- it's negotiating to avoid that scenario.
Now here's why Novavax still could be a buy. The company cut $50 million in costs so far this year and plans to continue reducing costs, CEO John Jacobs told Reuters in an interview. And Novavax hasn't given up on its coronavirus program: It aims to have an updated booster ready for the fall vaccination season.
Novavax also continues to study its combined coronavirus and influenza vaccine candidate in phase 2 trials. This type of product could help it carve out significant market share down the road. The 50% of Americans who go for an annual flu shot would probably consider a jab that covered both viruses.
Novavax shares have dropped more than 80% over the past year. But from today's level, Wall Street expects them to soar more than 400% in the coming 12 months. That seems very optimistic. But even if Novavax shares only make it part of the way, the upside could be enormous.
2. Vaxart
Vaxart quickly caught the attention of investors early in the vaccine race. That's because the biotech company is working on oral vaccine candidates, which would be given in pill form with a glass of water. Clearly such a product would be popular.
But Vaxart's program fell behind. In fact, the company decided earlier this year to drop its main coronavirus vaccine program and focus on its norovirus program. This move extends its cash runway into the second quarter of next year.
It makes sense to switch focus at this point. Right now, demand for coronavirus vaccines is declining, and Pfizer and Moderna dominate the market. So it could be difficult for any newcomer to gain share -- even a compelling oral vaccine.
Norovirus, however, represents a bigger opportunity. This virus causes gastroenteritis in about 21 million people in the U.S. each year -- and there's no approved vaccine yet. Vaxart's program is in phase 2 development; data so far have been positive, and the company expects two additional data readouts this year.
In fact, the phase 2 data may identify certain measurable signs of immunity -- that way, Vaxart might be able to conduct a smaller and shorter phase 3 study.
Like Novavax's, Vaxart's shares have plummeted more than 80% over the past year. But from today's level, Wall Street expects them to climb more than 760% in the coming 12 months. Again, this may be optimistic. If Vaxart hits any roadblocks, the stock could slide further. But if the biotech reaches its goals, investors could win big.
