You’ve already read the headlines. Stocks across the globe are plunging on concerns that the rapidly spreading coronavirus from China may inflict a bigger hit on the global economy than previously expected. But, the coronavirus outbreak isn’t bad news for all stocks. Instead, there’s a select group of “coronavirus stocks” which have been red hot while the rest of the market plunged in February.
Indeed, as the virus has spread, these coronavirus stocks have only gained momentum.
As you could imagine, these are stocks which stand to benefit when epidemics go global. We are taking face mask producers, hazmat suit makers, virus testing kit makers and biotech companies working on a cure.
We are also talking companies which may stand to benefit from the “stay-at-home” trend, as companies in certain geographies increasingly pivot towards telework practices in order to prevent further spread and consumers increasingly opt for a night in as opposed to a night out. This list includes video teleconferencing companies and telehealth companies.
In grand total, there are seven noteworthy coronavirus stock which have rallied big while the market has plunged. Those seven coronavirus stocks, with year-to-date returns, include:
- Alpha Pro Tech (NYSEMKT:APT) +450%
- Co-Diagnostics (NASDAQ:CODX) +1,650%
- Teladoc Health (NYSE:TDOC) +46%
- Moderna (NASDAQ:MRNA) +43%
- Allied Healthcare Products (NASDAQ:AHPI) +1,340%
- Gilead (NASDAQ:GILD) +13%
- Zoom Video (NASDAQ:ZM) +72%
Some of these coronavirus stocks will stay hot. Others won’t. To understand which ones are winners and which ones are flashes in the pan, let’s take a closer look at each of these seven red-hot coronavirus stocks.
Red-Hot Coronavirus Stocks: Alpha Pro Tech (APT)
Year-to-Date Gain: 450%
Why It Has Been Hot: Shares of Alpha Pro Tech have surged a jaw-dropping 450% in 2020 because this is the face mask company expected to benefit hugely from a significant uptick in face mask demand over the next few months.
Alpha Pro Tech makes N-95 face masks. At the start of the year, the company had a $45 million market capitalization. In the three-week span from Jan. 27 to Feb. 20, the company booked $14.1 million in N-95 face mask orders. That represents an uptick of almost $5 million in orders per week.
And that was before the outbreak went global. One can only imagine that this number has gone up in the past two weeks. The company could very easily be doing $10 million to $15 million in bookings per week today.
Given that huge volume surge, it’s easy to see how this $45 million company has popped in a big way since the start of the year. Today, the market cap stands up near $300 million, which feels a lot more appropriate for a company doing $10 million-plus in sales per week.
Will It Stay Hot? I doubt it.
This is a one-time surge in face mask demand. It will last until maybe April or May. By that time, warmer weather coupled with strict quarantining and vaccine progress will significantly suppress the outbreak. Plus, U.S. officials are loudly telling the public to stop buying face masks. That certainly won’t help demand.
Big picture — while this quarter’s numbers from Alpha Pro Tech will look great, the numbers in the same quarter in 2020 will look just like they did in 2019. In other words, this demand surge is not sustainable. It reasons, then, that neither is the spike in APT stock.
Year-to-Date Gain: 1,650%
Why It Has Been Hot: Molecular diagnostics company Co-Diagnostics has been the hottest stock in 2020 for one very simple reason: The company makes coronavirus testing kits, and those testing kits have been in huge demand.
Co-Diagnostics has developed a proprietary coronavirus testing kit which has become the global gold standard in testing for Covid-19. Those testing kits are in huge demand. Not only are they necessary to identify, contain and combat the coronavirus, but there’s also a huge shortage of them across the U.S.
Consequently, Co-Diagnostics will sell a lot more coronavirus testing kits so long as the virus keeps spreading in the U.S. That’s great news for this small-cap company.
Will It Stay Hot? Again, I have my doubts.
Co-Diagnostics stock is up almost 1,700% this year. We are only two months and change into the year. That’s a huge gain in a short time. And it’s because of a one-time demand surge. Come next year, or even by summer 2020, it’s unlikely that there will be much demand for coronavirus testing kits.
On the other hand, there are some arguments out there which say that Covid-19 will end up turning into a seasonal flu or cold. If so, then the virus in a very mild form is here to stay for the long haul. In that scenario, Co-Diagnostics will keep selling testing kits for a lot longer.
But, I don’t think that’s the base case, and so I’d tread carefully with red-hot CODX stock.
Teladoc Health (TDOC)
Year-to-Date Gain: 46%
Why It Has Been Hot: Hyper-growth telehealth company Teladoc Health has risen nearly 50% year-to-date on the back of two things.
First, the coronavirus outbreak has prompted many governments, companies and agencies across the globe to promote telehealth practices, in an attempt to minimize and contain the spread of the virus. Second, the company reported blockbuster fourth-quarter numbers against that favorable coronavirus backdrop, further emphasizing that if anything, the coronavirus has been somewhat good for business.
As such, it should be no surprise that Teladoc — the global leader in modern telehealth — has been a winner amid the coronavirus outbreak.
Will It Stay Hot? I think so.
Unlike Alpha Pro Tech or Co-Diagnostics, Teladoc’s big early 2020 boost is sustainable. That’s because telehealth has long-running benefits such as convenience, cost, safety and more. Because of those long-running benefits, as more people try telehealth amid the coronavirus outbreak, they’ll actually find out that they like it. They won’t churn. Instead, they’ll stick around and become long-term telehealth patients.
In other words, the coronavirus could be what turns telehealth mainstream.
That’s great news for Teladoc. This company was already hot before the coronavirus outbreak, because telehealth was starting to gain mainstream traction. Going forward, it will only get hotter, as telehealth actually does go mainstream. As it does, TDOC stock should sustain its upward trajectory.
Year-to-Date Gain: 43%
Why It Has Been Hot: Shares of clinical stage biotech company Moderna are up more than 40% year-to-date largely because this company is among one of the front-runners to deliver a coronavirus vaccine.
Moderna is all about leveraging messenger RNA (or mRNA) to develop a new class of medicines. At present, they are focused on using mRNA to develop therapeutics and vaccines for treatment of infectious diseases. That made the company a natural fit to develop a coronavirus vaccine.
So, the team at Moderna went to work to do just that. And, in a record-setting 42 days, they developed mRNA-1273, a potential coronavirus vaccine. That vaccine has been shipped to U.S. government researchers at the National Institute of Allergy and Infectious Diseases, who will begin clinical trials in April.
Will It Stay Hot? Probably not.
Moderna is a great company. There’s a lot more to it than just developing a coronavirus vaccine. And, the fact that it was able to develop a coronavirus vaccine using mRNA in just 42 days, is a testament to the capabilities and potential of this company. Long term, I expect Modern to develop many more vaccines, for the company to become much bigger and for the stock to go much higher.
But, here and now, Moderna stock is popping on coronavirus vaccine hopes. Those hopes have huge risks. No one really knows if what Moderna developed will work and pass clinical trials. There’s also a ton of competition in this space, mostly from Gilead whose remdesivir anti-viral treatment appears to actually work in combating the coronavirus.
Big picture — there’s a lot of uncertainty surrounding whether or not mRNA-1273 will make it out of clinical trials and be the gold standard coronavirus vaccine. If it doesn’t, Moderna stock is subject to give back all of its gains.
Allied Healthcare Products (AHPI)
Year-to-Date Gain: 1,340%
Why It Has Been Hot: Medical device maker Allied Healthcare Products has seen its stock shoot up more than 1,000% this year because this company makes a suite of products which should sell very well during global health outbreaks.
That is, Allied Healthcare makes mass casualty ventilators and other medical products designed for use during epidemics. Right now, we are in the midst of a widespread epidemic.
Connecting the dots, it reasons that Allied Healthcare’s business should do as well today as it’s arguably ever done. Investors clearly think so. The stock is up 1,340% this year.
Will It Stay Hot? I doubt it.
Like many of the other names on this list, Allied Healthcare stock is surging because of what will ultimately be a one-time boost in demand limited to the first half of 2020. Thereafter, demand for mass casualty ventilators and other epidemic-related medical products will taper off back to their normally low levels.
As it does, the rally in AHPI stock will lose steam.
Year-to-Date Gain: 13%
Why It Has Been Hot: Biotech giant Gilead has seen its stock rise about 13% this year because the company is behind what is widely considered to be the leading candidate for a coronavirus treatment.
Gilead has an anti-viral treatment called remdesivir. Remdesivir has been shown to work in fighting coronavirus strains in animals. It was also given to a patient in Washington state, and that patient’s symptoms immediately improved. “There’s only one drug right now that we think might have real efficacy, and that’s remdesivir,” said Bruce Aylward, an assistant director general at the World Health Organization.
In other words, Gilead may have the answer to treating and curing the coronavirus.
Will It Stay Hot? I think so.
Given some animal and human success, as well as favorable commentary from health experts, I’m cautiously optimistic that remdesivir will be cleared as a coronavirus treatment within the next few months. That will be a win for Gilead.
But, Gilead is so much more than remdesivir. And that’s really why you want to stick with the rally in GILD stock. Not only is this stock winning because of the coronavirus, but it will keep winning long after the coronavirus fades, too.
This “win now, and win later” attribute of GILD stock makes it an attractive hedge in the current market.
Zoom Video (ZM)
Year-to-Date Gain: 72%
Why It Has Been Hot: Video conferencing company Zoom Video has seen its stock surge more than 70% higher in 2020 on the back of the idea that, while physical business will slow amid the coronavirus outbreak, business in general won’t slow.
That is, the economy broadly remains strong. Companies will continue to do business. But, businessmen won’t be taking flights abroad, and many companies will start urging work-from-home practices. In that world, video teleconferencing software becomes mission-critical. Without it, you can’t keep doing business and keep everyone at home at the same time.
As such, there’s this general idea that over the next few months, companies will increasingly use video teleconferencing software like Zoom to conduct meetings, as opposed to doing so in-person. That idea has been behind the huge year-to-date rally in ZM stock.
Will It Stay Hot? I have my doubts.
I do see the argument for why Zoom usage will go up over the next few months. And I also see the argument for why this won’t be a short-term tailwind, because companies will adopt Zoom today, fall in love with it, and never stop using it.
Still, I’m unconvinced that this stock deserves its current valuation. In today’s market full of economic risks, paying 400-times forward earnings for a company expected to grow revenues by 40% next year just seems too steep. I simply think there are better and safer options out there.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.