When it comes to Warren Buffett, although I believe he has his flaws as we all do, there’s no question his big-picture thinking is better than most. Buffett simply will not invest in things he doesn’t understand. iBio Pharma (NYSEAMERICAN:IBIO) and IBIO stock would surely fall into this category.
Here’s the thing: If anyone were interested in investing in companies looking to create a coronavirus vaccine, it would be an 89-year-old billionaire worth $77 billion, more than all but a handful of the world’s biotechnology companies.
Older adults are most at risk of contracting the coronavirus. Others susceptible include those suffering from heart disease, diabetes, or lung disease.
As far as I know, Buffett suffers from none of these, but he’s in the category most likely to be affected. And, yet, you won’t see Buffett buying iBio despite the fact it’s working on a coronavirus vaccine.
Here are the reasons why.
Buffett Has No Edge
Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) could find and pay for the world’s most knowledgeable infectious disease experts. That still wouldn’t give Buffett an edge over the average Joe when it comes to predicting which of the many companies looking to deliver on a coronavirus vaccine will be successful — if any.
As I write this, a press release just came into my email mailbox from Medicago Inc., a Quebec City-based biopharmaceutical company that has come up with a viable vaccine for COVID-19.
“They [Medicago] have successfully produced a Virus-Like Particle (VLP) of the coronavirus just 20 days after obtaining the SARS-CoV-2 (virus causing the COVID-19 disease) gene.
Production of the VLP is the first step in developing a vaccine for COVID-19, which will now undergo preclinical testing for safety and efficacy,” the March 12 press release stated.
“Once this is completed, Medicago expects to discuss with the appropriate Health Agencies to initiate human trials of the vaccine by summer (July/August) 2020.”
According to the press release, Medicago uses plant-based technology to develop protein-based therapeutics. It does not use animal products or live viruses to create its products.
The company currently has one product under review with Health Canada. It is a Recombinant Quadrivalent Virus-Like Particle (QVLP) seasonal flu vaccine that would be used for pandemic flu, rotavirus and norovirus. It is being tested across pre-clinical and Phase II clinical trials.
As a Canadian, I’m delighted to hear about a potential home-grown solution to the coronavirus. If Buffett were interested in investing in coronavirus solutions, wouldn’t it make sense for him to consider all possibilities and not just iBio’s potential vaccine?
Of course, it would.
But I doubt he’s going to play a mug’s game, which is what anyone who invests in iBio is doing, without significant healthcare expertise.
There’s a Better Place to Put His Money
Having studied the Oracle of Omaha for some time, my guess is that his preferred route would be to add to his existing equity positions, especially the four airline stocks he owns, which as a group are down 31% (including dividends) over the past month through March 11.
Secondarily, he might want to use some of Berkshire’s $130 billion in cash to backstop one or more of these airlines should they need external financing to ride out the global pandemic. As past investments have demonstrated, he can expect to get convertible preferred shares with a juicy yield attached and an attractive conversion price on the warrants attached.
In the case of Occidental Petroleum (NYSE:OXY) in 2019, he got 8% preferreds with warrants to buy 80 million OXY shares at $62.50. While OXY’s share price is currently way underwater, he’s getting 8% interest to wait for the situation to improve. Worst-case scenario: Occidental goes under and Berkshire is out $10 billion.
That $10 billion represents 1.2% of the company’s $818 billion in total assets.
Finally, in addition to the airlines, the cruise companies might be in even greater need of financial support once the coronavirus outbreak simmers down. That’s because if people didn’t question their sanity for putting themselves in a 3,000-person petri dish before this outbreak, they sure as heck would be in the future.
It might not last. People tend to go back to their regular routines. However, in the next 12 months, cruise numbers are going to dwindle. Lower oil prices will help keep costs down, but these vessels don’t come cheap. In 2020, Royal Caribbean (NYSE:RCL) is expected to spend as much as $384 million on its long-term debt and more than $1.3 billion over the next five years.
The Bank of Berkshire will be open for business.
The Bottom Line on IBIO Stock
If I were to bet on a stock that looks to benefit from the coronavirus — and I’m not — I would focus on those companies who aren’t changing their entire business strategy to capitalize on this pandemic.
That means large-cap biopharmaceutical companies that are already making money and don’t need coronavirus success to keep making money.
Don’t bet on things you know very little. You’ll thank me down the road.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.