While financial markets across the globe are tumbling on concerns that the rapidly spreading coronavirus will inflict more damage on the global economy than previously anticipated, a few “coronavirus stocks” are rallying big as the virus (and fears about the virus) spread. Perhaps the most noteworthy of those coronavirus stocks is Co-Diagnostics (NASDAQ:CODX) stock.
The molecular diagnostics company has made a coronavirus testing kit which, thanks to the virus’ spread and a big need for more testing kits both in the U.S. and across the globe, should see a huge uptick in demand over the coming months. That’s largely why this small-cap biotech company has seen its stock rise by nearly 2,000% in 2020.
That’s right. CODX stock was trading hands around 90 cents coming into the year. Today, it trades hands north of $15… all because of the coronavirus outbreak.
Seem a bit overdone?
It is. In the big picture, the base scenario here is for warmer weather, strict quarantining, and broader distribution of potential treatments and vaccines to kill the coronavirus outbreak by summer 2020. So, Co-Diagnostics is likely looking at a few months of super-charged testing kit demand, and that’s about it. Come June or July 2020, sales figures will be back to their abysmally low levels, and Co-Diagnostics stock will drop back into penny stock territory.
But, that won’t happen just yet.
Instead, for the time being, CODX stock is the market’s favorite coronavirus play. So long as the virus keeps spreading, CODX stock will likely keep working.
Coronavirus Will Get Worse
The current coronavirus outbreak is a classic case of “things will get worse before they get better.”
Over the next few weeks, the U.S. will rapidly expand coronavirus testing capacity. The more the U.S. tests for coronavirus cases, the more cases will be reported across the nation. The more cases reported, the more hysterical consumers will get. More deaths will be reported, too. Media coverage on the issue will remain largely pessimistic, and will oftentimes come with an apocalyptic tone. The same will be true across Europe, the Asia-Pacific, and largely everywhere except China.
All in all, then, the coronavirus outbreak and fears regarding the outbreak will get worse over the next few weeks.
That’s good news for CODX stock for two reasons.
First, the worse the outbreak gets, the more labs in the U.S. and across the globe will order coronavirus testing kits. Co-Diagnostics isn’t the only company in the game of making these testing kits. But there are one of a select few, and as such, the higher demand for coronavirus testing kits goes, the higher Co-Diagnostic’s sales will go.
Second, the more elevated fears regarding the outbreak get, the more markets will tumble, and the more investors will tumble into coronavirus stocks to weather the storm. So, as long as coronavirus fears keep rising, CODX stock will likely keep working as a hedge against market volatility.
But Things Will Get Better
Rest assured — things on the coronavirus front will get better with time. Like all other epidemics in the past fifty years, this too shall pass, and rather quickly, for a few reasons.
First, warmer weather tends to kill influenza outbreaks like COVID-19. There’s no reason to believe COVID-19 will break this trend. As such, warmer weather come April/May 2020 will help suppress the spread and kill the virus.
Second, governments across the globe have been quick to quarantine confirmed cases. Such quarantining efforts work in suppressing spread. Just look at China. They were quick to quarantine the city of Wuhan and all other places with confirmed cases. Now, about two months after the onset of the outbreak, the virus is slowly dying in China. New reported cases are falling, recoveries are rising, and active cases are steadily dropping.
Third, tremendous progress has been mode on the vaccine/treatment front, with companies like Gilead (NYSE:GILD) and Moderna (NASDAQ:MRNA) racing to push out potential treatments and vaccines in record time. These treatments and vaccines, assuming they pass clinical trials, should be available for distribution within a few months. Needless to say, the broader distribution of potential vaccines will help kill the virus.
All in all, then, this isn’t the end of the world. Things will get better. And soon.
That’s good news for most of us. It’s bad news for CODX stock. When things do get better, the coronavirus hype in this stock will fade and shares will collapse.
Bottom Line on CODX Stock
Co-Diagnostics is the market’s favorite coronavirus play. That has two major implications.
One, so long as coronavirus fears remain, this stock will keep working. Two, once those fears disappear, the stock will stop working.
With that in mind, feel free to play CODX stock as a near-term trade on coronavirus fears. But, be careful. Today’s elevated levels are not sustainable in the long run.
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.