InvestorPlace contributor and longtime stock jockey, Louis Navellier, recently selected Co-Diagnostics (NASDAQ:CODX) and CODX stock as one of seven biotech stocks to buy that are trying to beat back the novel coronavirus, and at the same time, possibly come up with a vaccine.
I’ve been asked to discuss my thoughts about the company behind the Logix Smart Covid-19 test kit. Frankly, it’s hard to believe I haven’t been asked to write on this subject before.
In recent months, I’ve written about the other six on Navellier’s list, becoming semi-competent on the subject, but by no means developing anywhere near the understanding to bet on any of these companies. If you’re not grounded in science, you probably ought to pass on Co-Diagnostics as well.
Here’s why.
A 5% False Positive
My InvestorPlace colleague, Larry Ramer, often takes the less popular view of a stock or company and while that might make him unpopular with some of our momentum-bent readers, he does provide a nice dose of reality.
To be honest, I haven’t followed Co-Diagnostics’ story, so when I read Navellier’s recommendation, I immediately thought that a company with a Covid-19 test was about as safe a biotech bet as you could make.
It’s not proposing to eliminate or treat the vaccine; it’s just offering medical practitioners a fast test (less than two hours) to determine whether an individual has the virus. Considering a significant portion of Covid-19 patients are asymptomatic, testing remains an essential part of reducing the virus’ community spread.
Ramer, however, recently discussed how Co-Diagnostics’ test might not be 100% accurate, suggesting that as many as 5% of its tests are false positive.
“Specifically, an evaluation of 26 other coronavirus tests conducted by a non-profit organization called The Foundation for Innovative New Diagnostics, or FIND, found that 18 of the negative tests had a 100% accuracy rate. Moreover, 23 of the 26 tests had a higher accuracy rate on positive results than Co-Diagnostics’ 95% rate identified by the University of Iowa,” Ramer wrote on May 28.
“The 5% false-positive rate of Co-Diagnostics’ test seems too high and too differentiated from most of the tests evaluated by FIND to be due to chance or an evaluation error.”
Ramer goes on to suggest that if you were in charge of picking a test for your state, you would surely pick one that is 100% accurate for both positive and negative Covid-19 results. Anything less shouldn’t cut it.
From an investment standpoint, I’m always thinking about my options. I don’t necessarily have to invest in CODX stock because there are other potential options available, ones probably safer in the grand scheme of things.
Abbott Labs (NYSE:ABT) and Thermo Fisher Scientific (NYSE:TMO) are two companies providing Covid-19 tests. Both have market capitalizations greater than $100 billion or 200 times Co-Diagnostics’ market cap.
You could buy stock in either of these and do well over the long haul regardless of what happens on the Covid-19 front.
However, when I read Navellier’s article, the first thing that came into my mind is there ought to be an ETF exclusively for Covid-19.
An ETF Alternative to CODX Stock
The coronavirus has helped certain theme-based ETFs, which are expected to gain traction post-pandemic, as the way we go about our lives changes. Artificial intelligence, robotics, connectivity and other disruptive technologies will all benefit from increased investor participation.
On April 23, EQM Indexes LLC launched four Covid-19-related indexes, including the EQM Covid-19 Stock Index, which tracks companies developing therapies, vaccines, and tests to stop the virus in its tracks. It is equally weighted with CODX stock as the third-largest holding with a weighting of 3.39%. On a back-tested basis, the index is up 97.4% year to date through May 29.
“Our goal was to provide timely access to these investment ideas, which are not trades, but capture longer-term thematic trends, which will prevail post the resolution of the COVID-19 global pandemic,” said Janes Edmondson, EQM Indexes’ CEO and co-founder.
For now, there is no ETF provider for the index. However, You can actually buy this index at Folio Financial, which itself was acquired in mid-May by Goldman Sachs (NYSE:GS).
Goldman is building out its wealth management business. Buying Folio brings more than $11 billion in assets under administration from registered independent advisors. Perhaps some of this fun money should go into the EQM Covid-19 Stock Index.
To me, this seems like a much smarter play than focusing on Co-Diagnostics exclusively.
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.
