How to invest in coronavirus vaccine stocks

One or more drugmakers with COVID-19 vaccines in development could make a fortune very soon. The global market for novel coronavirus vaccines could reach $20 billion next year.

When companies make a fortune, so can their investors. How to invest in stocks of coronavirus vaccines? Here are three simple steps to follow.

Image source: Getty Images.

1. Determine your risk tolerance

You want to get the most money out of your investment, but there’s one key principle in investing: to get higher returns, you have to accept a higher level of risk. Before investing in coronavirus vaccine stocks, determine your risk tolerance.

Every stock carries risk, but the ones you’ll need to buy to take advantage of a coronavirus vaccine are more uncertain than most. This is especially true for small biotechs that do not yet have approved products on the market. Any setback can cause these biotech stocks dive.

The earlier a drugmaker’s pipeline candidates are in the clinical development process, the riskier their stock is. For example, a COVID-19 vaccine candidate that is in preclinical testing has a much higher risk of failure than a candidate that has gone through late-stage clinical testing in humans. Moreover, the more potential candidates a company has, the less risky it is.

Buying shares of large pharmaceutical companies presents a lower level of risk. These drug manufacturers already have several approved products in the market and are generating significant revenue. Many of them are quite profitable. While a stumble for their COVID-19 vaccine candidates would cause their stocks to plummet, it likely wouldn’t cause the stock to crash.

2. Identify stocks that match your investing style

Once you’ve objectively assessed the level of risk you’re willing to take, the next step is to identify the stocks that best suit your investment style. Below are some ideas based on three levels of risk tolerance.

Lower risk tolerance

The following three big pharma stocks are developing vaccine candidates against COVID-19 and are worth considering by investors with low risk tolerance:

Society

Market capitalization

COVID-19 vaccine status

Astra Zeneca (NASDAQ:AZN) $141.3 billion In phase 3 testing
Johnson & Johnson (NYSE:JNJ) $393.7 billion Phase 3 testing will begin in September
Pfizer (NYSE: PFE) $202.3 billion Phase 2/3 testing

Data sources: Yahoo! Financial and corporate press releases. Market capitalizations as of September 3, 2020.

Pfizer is developing the COVID-19 vaccine candidate BNT162b2 with its partner, BioNTech. The companies plan to seek emergency use authorization for the vaccine from the Food and Drug Administration in October 2020.

More risk tolerance

The following drugmaker stocks have at least one pipeline candidate in late-stage testing (reducing their risk), but do not yet have approved products on the market (increasing their risk):

Society

Market capitalization

COVID-19 vaccine status

Inovio Pharmaceuticals (NASDAQ: INO) $1.7 billion Plans to start Phase 2/3 testing soon
Modern (NASDAQ:ARNM) $25.6 billion In phase 3 testing
Novavax (NASDAQ: NVAX) $6.3 billion In phase 2 testing

Data sources: Yahoo! Financial and corporate press releases. Market capitalizations as of September 3, 2020.

Of these three biotechs, Moderna has garnered the most external funding for its COVID-19 vaccine candidate, including up to $2.48 billion from the US government.

Highest risk tolerance

Here are two clinical-stage biotech stocks without late-stage programs that only investors with the highest risk tolerance might consider:

Society

Market capitalization

COVID-19 vaccine status

Therapeutic Altimmune (NASDAQ:ALT) $441 million In preclinical test
vaxart (NASDAQ: VXRT) $568 million Awaiting FDA approval to begin phase 1 testing

Data sources: Yahoo! Financial and corporate press releases. Market capitalizations as of September 3, 2020.

Vaxart has one of the most intriguing COVID-19 vaccine candidates because it’s delivered in tablet form, rather than by injection.

3. Assess other business opportunities and challenges

Finally, be sure to check other business opportunities and challenges for any coronavirus vaccine stock you are considering. For example, all of the companies mentioned have other pipeline candidates.

You might find that there might be compelling reasons to think about buying a stock even if its COVID-19 vaccine fails. AstraZeneca is a good example. The major drugmaker boasts several successful franchises with strong growth prospects, as well as a pipeline full of potential winners.

Buy and watch

Once these three steps have been completed, you are ready to invest. Keep in mind, however, that coronavirus vaccine stocks require monitoring. Their outlook changes frequently with the results of clinical studies and news of government reimbursements. Some could very well turn out to be stocks you can buy and hold for years, but you need to watch them closely.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

About Gertrude H. Kerr

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