Vaccine is Coming! Thoughts on the Stock Market…
The America Innovation engine comes through again, with Pfizer announcing a new vaccine today with above 90% efficacy and basically zero safety concerns. The 90% efficacy rate is stunning and even surprised season vaccine experts. Considering this vaccine appears to as effective as vaccines for smallpox and measles, this vaccine hopefully will not only limit the spread of Covid-19, but help to possibly eradicate this nightmare.
Assuming the US and rest of the world can jump into hyperdrive and manufacture this vaccine in mass, such news makes the stock market look very different. Companies such as airlines, hotels, restaurants, etc. will soon be able to make money once again; but are they a buy?
My take — one can definitely consider leisure and hospitality stocks now; however, before plunging in….one must look at a companies balance sheet and particularly, a company’s current debt load.
Companies like Marriott International (MAR) managed the virus well financially and slashed operating costs 57%. MAR’s cost cutting was so extreme, they even managed to generate a profit somehow in the most recent quarter. With a stock priced around 118 now (down from 150 or 21% at the start of the year) and total Long-Term debt down from the start of the year, MAR seems like a buy on the vaccine news.
However, companies like American Airlines (AAL) and the airlines in general may not offer a compelling buy. AAL’s stock has been hit massively during the pandemic; down from almost $30/share to $13/share range.
That said, its enterprise value (which is a market capitalization measure which also consider cash and debt) hasn’t budged too much; mainly because of the amount of debt AAL has taken on to weather the storm.
Therefore, although AAL is perceived to be cheap from a stock price perspective. From an Enterprise value perspective, it seems rich relative the alternatives. As always, use logic and math to justify investments options for the future.
As a final speculative buy recommendation, I point to Moderna (MRNA). The new vaccine created by Pfizer and BioNTech relies on a new messenger RNA Technology platform never used before in an approved medicine. Moderna, as we speak, is creating a vaccine candidate as well which relies on this platform. Data from Moderna is expected sometime this month. Given the success Pfizer points to, one could logically conclude Moderna will see similar data. Additionally, although the news the this technology proved pivotal in creating a vaccine for Coronavirus, this may only be the tip of the iceberg. This new platform may be used to tackle several other medical dilemmas and disrupt the drug industry in a massive manner….by making our own bodies mimic medicine-manufacturing factories.