Bad coronavirus news for the country equals good news for Covid-19 vaccine stocks.
On the back of rising coronavirus case counts and hospitalizations across several U.S. states, the stock market has plunged and biotech companies in the race to develop a coronavirus vaccine have seen their stock prices soar. Over the past week, Sorrento (NASDAQ:SRNE) stock is up 18%, Arcturus (NASDAQ:ARCT) stock is up 26%, Dynavax (NASDAQ:DVAX) stock is up 28%, Novavax (NASDAQ:NVAX) stock is up 41%, and Inovio (NASDAQ:INO) stock is up 78%.
Such huge rallies across all Covid-19 vaccine stocks imply that coronavirus vaccine optimism is bordering on unchecked euphoria. Many of these stocks are now up 500%+ year-to-date.
To that end, I’d tread carefully with Covid-19 vaccine stocks. And I’d tread with extra caution when it comes to the hottest stock in the group — NVAX stock — which is up nearly 2,000% in 2020.
Here’s a deeper look at why.
Novavax stock has increased almost 20X in 2020 because of one simple thing: speculative euphoria with respect to the company’s Covid-19 vaccine candidate.
I understand this optimism.
Covid-19 is a huge problem. Its infected nearly 10 million people globally. It’s shut down the world’s economy. And whoever comes up with a vaccine, that vaccine maker will generate huge revenues as its Covid-19 vaccine is widely distributed and used in 2021/22.
I also understand that this isn’t a “winner-take-all” market. Multiple players will deploy scalable and effective Covid-19 vaccines in 2021/22. All of those players will get a huge revenue and profit boost from their Covid-19 vaccines.
But… I struggle to see Novavax as one of the “last men standing” in this market.
Yes, Novavax has developed a Covid-19 vaccine. So have 146 other companies in the world. Also, sure, Novavax’s Covid-19 vaccine is onto human trials. But so are 22 other Covid-19 vaccines. Many of those other vaccines are also onto Phase II trials, whereas Novavax’s vaccine is still in Phase I trials. Plus, Novavax didn’t make the finalist cut for the U.S. government’s Operation Warp Speed initiative.
In other words, I see Novavax as a largely undifferentiated player in a sea of dozens of Covid-19 vaccine makers.
Yet… on hype surrounding its Covid-19 vaccine… NVAX stock has surged almost 2,000% year-to-date. And Wall Street has awarded Novavax a $3.6 billion market cap.
Of course, that market cap will be warranted if, indeed, Novavax is one of the handful of vaccine makers left standing in 2021/22 that is deploying its vaccine across the globe. But visibility to that point is presently limited. And in the event Novavax doesn’t get there, downside risk in NVAX stock is huge.
Still, if you believe in the Novavax growth narrative and see the company as being one of the “last men standing” in this market come production time, I wouldn’t buy NVAX stock here, on the heels of a 40%+ rally in five days.
Novavax stock has been so hot that its Relative Strength Index (RSI) sits at 80 — which, by traditional definitions, puts the stock deep in overbought territory.
The RSI on NVAX stock has hit 80 three times before this year. Late January 2020. Late February 2020. And mid-May 2020.
Each time, NVAX stock proceed to form a local peak, and plunge over the following few weeks. Following its late January peak, the stock fell 30%. In early March, the stock lost about half of its value. In late May, NVAX stock fell more than 20%.
In the near-term, a similar dynamic will play out. Over the next few weeks, Novavax stock will likely fall by 20% or more.
If you believe in Novavax’s Covid-19 vaccine efforts, then don’t buy the stock here. Wait for that 20% drop to materialize. Then buy the dip.
Bottom Line on NVAX Stock
From where I sit, Novavax looks like just one of more than 20 companies pushing forward with human trials of a Covid-19 vaccine. I suspect only a handful of those companies will be left standing when it comes to actually selling Covid-19 vaccines.
Will Novavax be one of them? I have no idea. There is a significant lack of visibility as to who will be on the podium when all is said and done.
And yet, despite that lack of visibility, NVAX stock has risen nearly 2,000% in 2020.
That makes the stock unnecessarily risky here and now.
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 recognized as one of the best stock pickers in the world 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, he did not hold a position in any of the aforementioned securities.