If you’ve been following my work — and especially recently — you’ll easily predict what I have to say about medical supplies producer Alpha Pro Tech (NYSEMKT:APT). If not, the volatility of APT stock in the last few days should give you a hint.
Just in the Feb. 28 session, Alpha Pro surged to an intra-day high of $41.59. But by day’s end, APT stock closed at $21, near its intra-day low of $16.61. Just on Feb. 20, shares closed at a lowly $5.21. If that wasn’t enough to cock your eyebrows, consider that at the beginning of this year, shares were trading around $3.50.
In fact, APT stock has been trading around this level — interspersed with the occasional undulations — since September 2016. Is that the kind of dynamic to which you can trust your portfolio? I think not.
Of course, the sudden surge in Alpha Pro Tech — a name that really doesn’t resonate with the general public unless there’s an acute catalyst — is due to the coronavirus from China. Initially, international health officials hoped that China would contain the epidemic within its borders. Obviously, that didn’t happen. With the spread of the virus comes collective panicking.
Specifically, APT stock bounced to ridiculous levels when the underlying company announced that it expects to fulfill skyrocketing demand for medical face masks. If you go to the websites of Home Depot (NYSE:HD), CVS Health (NYSE:CVS) or any other retailer carrying protective masks, you’ll notice that most, if not all, are out of stock.
We’ve Seen This Before
I’ll concede this: If the company delivers on its promises, shares may stay elevated in the nearer term. And in some way, Alpha Pro Tech would be performing a service to the public.
First, China is one of the biggest producers of medical face masks — no surprise, really. With supply chain disruptions threatening the immediate picture, strong demand exists for regional alternatives.
Second, once a panic ensues, you can’t reason with large-scale group think. Should you want a face mask for personal or protective reasons during this time, I won’t begrudge you. That said, I’m adamant about not buying APT stock: We’ve seen this movie before and it never turns out great in the long run.
During the 2009 swine flu pandemic, Alpha Pro Tech stock surged to then all-time highs. The reason was similar to the present coronavirus outbreak. As a variant of the flu spread, people sought the perceived safety of medical face masks. After the pandemic faded, though, shares eventually slumped to just above $1.
Between 2014 and 2016, the Ebola virus dominated headlines. Again, people were gripped in fear and like clockwork, APT stock catapulted higher. But because the scale of the virus was limited, shares again dropped to their normal trading range.
I think you can see a pattern here. Moreover, I wouldn’t bet that this time is different for Alpha Pro Tech. Eventually, government agencies contain epidemics and even pandemics, no matter how bad they get. Therefore, at some point, APT will give up its gains.
Why More Caution Is Merited This Time Around
As you know, I’ve spoken extensively about digitalization and how it will continue to transform the way we live. A major component of this progression of course is the internet and the many platforms we use to disseminate information.
Although people are panic-buying face masks now, medical professionals have stepped up to cool the emotional fanfare. Essentially, most masks help prevent the wearer from infecting others if they already have the coronavirus.
But in terms of protecting yourself against getting sick? According to professionals in the field, only limited evidence exists. A major contributing factor to the lack of preventative effectiveness is that disposable masks aren’t airtight. Sure, tight-sealing masks are available, but they’re also incredibly uncomfortable to wear.
I’ll argue that the garden variety of masks are also uncomfortable. Anyone who has used one, especially in warmer weather, can attest to this.
As more people buy these things and apply them in their daily lives, they too will come to this realization. Factoring in the limited evidence for protection, demand for face masks risks plummeting. That’s another reason why you should steer clear of APT stock.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.