The rapid spread of coronavirus and the potential for global economic disruption led to the worst day for US stocks in two years yesterday. Though the human and financial cost of the virus is massive and growing, every crisis presents opportunities for savvy traders. For example, the likelihood of disruptions to business travel schedules stemming from COVID-19 has prompted traders to bid up the stock of Zoom Communications (ZM), a remote video conferencing platform, to record highs; in fact, the stock is up an incredible 59% so far this year alone!
One more direct way to speculate on potential beneficiaries of coronavirus’s spread is through the pharmaceutical companies seeking to develop vaccines and treatments for the virus:
GILD and JNJ: Potential Opportunity in Two Healthcare Stalwarts
More conservative investors may want to watch the stocks of large, profitable companies doing research into potential vaccines such as Gilead Sciences (GILD) and Johnson and Johnson (JNJ). For its part, Gilead has caught a bid after a World Health Organization (WHO) official stated that “There is only one drug right now that we think may have real efficacy and that's Remdesivir," referring to Gilead’s experimental drug that was also used to treat Ebola. GILD has been able to shrug off the broader market’s headwinds to close at its highest level since 2018, and positive results from expanded trials of Remdesivir may boost the stock further in the coming weeks.
Meanwhile the Janssen Pharmaceutical division of Johnson and Johnson, another healthcare stalwart, has a strong track record of quickly developing vaccines for epidemics and began working on a vaccine for COVID-19 weeks ago. While it may be a step behind Gilead in developing a potential breakthrough drug, it’s hard to bet against Johnson and Johnson’s team. JNJ has pulled back to test its 50-day EMA along with the broader market, presenting a potential opportunity to buy the stock at a discount for bullish traders.
Source: TradingView, GAIN Capital
MRNA and REGN: Higher Volatility Plays for More Aggressive Traders
Of course, with market capitalizations in the $100-400B range, even a breakthrough treatment for COVID-19 may not move the stocks of GILD and JNJ as much as aggressive traders would hope (it’s also worth noting that those stocks would likely remain profitable from their other business lines regardless). Instead, more aggressive traders may prefer to keep an eye on smaller capitalization stocks like Moderna (MRNA) and Regeneron Pharmaceuticals (REGN). Recently, the Coalition for Epidemic Preparedness Innovations (CEPI) agreed to fund Moderna to create a vaccine for coronavirus after seeing its strong results from a Phase 1 vaccine trial. Looking at the stock, MRNA has gapped higher today and is trading roughly in the middle of its 3-month range between $18 and $24. A break above $24.00 could mark the start of another leg higher.
Finally, Regeneron has tested two of its drugs, REGN3048 and REGN3051, on similar diseases in mice and saw a substantial decline in viral loads in the lungs. The company is currently experimenting with a combination of drugs “designed with the goal of enhancing efficacy, reducing the development of viral sequences that lead to resistance, and increasing potential utility in future outbreaks as viruses continually evolve.” Whether any of these drugs prove to be effective remains to be seen, but traders aren’t waiting for results: REGN has already rallied 33% this month alone, but given it’s $50B market cap, it could still gain more ground if its drugs are found to be effective.
Source: TradingView, GAIN Capital
There are no doubt countless other companies seeking a breakthrough to help the afflicted (and their own shareholders), but based on our read of the current situation, GILD, JNJ, MRNA, and REGN may offer some of the best opportunities for traders hunting for a cure.