The US stock indices are filled with small pharmaceutical and biotech stocks that are purely research-oriented. Most of these companies don’t even have revenue and focus solely on building a strong pipeline of medicines and vaccines to address various diseases that affect humanity.
The problem with these companies is that their low or nonexistent earnings lead to poor perception by investors because the qualitative benefits of their research cannot be measured tangibly. With the outbreak of the Wuhan corona virus, the importance of investing in the research of such companies has suddenly become a hot topic in the investor community, which is why prices of many of these stocks have risen.
A very interesting observation in this regard is that the Health Care Select Sect SPDR ETF rose from $ 89 in November 2019 to over $ 103 by February 18, which is a remarkable 15% growth for a fund that is fully and focused entirely on health stocks.
<p class = "Artboard-Atom Artboard-Text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The Wuhan Corona Virus“data-reactid =” 20 “>The Wuhan Corona Virus
In official figures, there were over 73,000 cases of the Wuhan corona virus, which mainly focus on China. Other Asian countries such as Singapore, Japan, Thailand and South Korea have also reported more than 30 cases each. Taiwan and France have recently confirmed their first coronavirus-related deaths.
The problem is no longer just in China. Imperial College London researchers advising the World Health Organization estimated that Wuhan had between 1,000 and 9,700 symptomatic cases in January. They predict that the world will hit a total of 300,000 coronavirus cases in the coming weeks. In fact, there are concerns that the number of cases in China is undersized. One of the researchers, Jonathan Read of the University of Lancaster, has estimated that only about 1 in 20 infections of the Wuhan coronavirus are detected for two main reasons. The first is that there are not enough health workers to test the whole country, and the second is that coronaviruses are known to have an astonishing percentage of cases with little or no symptoms.
When you look at the economic impact of the virus, the data is sad. Airlines, tour operators, tourism, manufacturing and many other sectors that are directly or indirectly connected to the Chinese market have been hard hit. Chinese workers had to work from home to curb the spread of the virus, which affected the country’s overall labor productivity. The Chinese markets have collapsed and the global markets have not been particularly successful. Major conferences, exhibitions, and events around the world (such as the Mobile World Congress) are either canceled or delayed.
<p class = "Artboard-Atom Artboard-Text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Benefit from the stock market situation“data-reactid =” 24 “>Benefit from the stock market situation
Healthcare investors have been trying to make the most of the situation by investing in large pharmaceutical and biotech companies such as Gilead Sciences (NASDAQ: GILD) and Regeneron Pharmaceuticals (NASDAQ: REGN), which is why their prices are experiencing some appreciation to have.
However, an important element that needs to be considered is the emerging biotech companies, which focus exclusively on research. Some of these companies trade ridiculously low valuations, but their research capabilities are incredible.
Take NanoViricides (AMEX: NNVC) for example. The company is one of the only names that have actually worked on developing a drug to treat the Wuhan coronavirus. CEO Dr. Anil Diwan had previously worked on research related to Middle-East Respiratory Syndrome (MERS), another type of coronavirus. Dr. Diwan believes that with government support and with the support of international organizations on this front, they can make rapid progress because they have already identified some candidate ligands in their chemical library that could be used to treat the Wuhan coronavirus. This is the reason why the stock has risen from close to $ 3 to over $ 17 in such a short time.
Interestingly, the stock is now close to $ 7 and is still valued favorably given the enormous research potential and products under development such as the current shingles cream.
Another interesting microcap in the field of antiviral research is Inovio Pharmaceuticals (NASDAQ: INO). The company has collaborations with a number of well-known research universities and is working on clinical studies of its proprietary SynCon immunotherapies for a variety of diseases, including HPV (Human Papillomavirus), cancer due to HPV, glioblastoma multiforme hepatitis B virus, hepatitis C virus, HIV, Ebola, MERS and Zika. Since the outbreak of the Wuhan coronavirus due to the MERS exposure, the stock has also experienced an enormous appreciation.
Other interesting research-oriented micro-cap picks include co-diagnostics (NASDAQ: CODX). Given that one of the biggest challenges associated with the Wuhan coronavirus is that cases are not diagnosed on time, the Utah-based company that sells reagents for diagnostic tests that work through the detection and analysis of nucleic acid molecules appears , very relevant. This is the reason why investors have bought the stock heavily since the breakout.
<p class = "Artboard-Atom Artboard-Text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The central theses“data-reactid =” 35 “>The central theses
The immense appreciation of the price-to-property book value for these companies in the past three months is obvious. Currently, NanoViricides appears to be the lowest rated among the three companies, but all have great potential in the long term.
It is important for investors to understand that buying shares in such companies is not a philanthropic way to fund research and benefit humanity. Given the appreciation that these stocks have shown in recent months, it can be a highly profitable investment that leads to multi-excavator returns. Given the emerging situation with corona viruses, such companies may offer an excellent opportunity for investors with sufficient risk appetite.
Disclosure: No positions.
Read more here:
Not a premium member of GuruFocus? Sign up for a free 7-day trial here.
<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "This article was first published on guru Focus,
“data-reactid =” 53 “> This article first appeared on GuruFocus.