Mike’s note: Here at Market Minute, our goal is to bring you actionable trading advice to profit – no matter what’s happening in the markets.
And our colleague, Jeff Brown, recently spotted an urgent idea in the biotech space in light of the rapid spread of COVID-19 – otherwise known as coronavirus.
He thinks that if you act on this idea soon… and pick companies using the criteria he reveals below… you can find huge profit opportunities – even though the broad market is falling. Read on to learn how…
By now, anyone who follows the media has heard about COVID-19, the coronavirus that began in Wuhan, China, and has spread to large parts of Asia, Italy, and Iran.
I started writing to readers of my free e-letter, The Bleeding Edge, about the virus at the end of January. At the time, only 7,700 people were known to be infected, and 170 people had died. In the days since, those numbers have drastically increased.
As of February 29, the World Health Organization (WHO) reported that over 82,000 people are infected, and 2,800 people have died worldwide.
On Tuesday, the former director of the U.S. Centers for Disease Control and Prevention (CDC) stated, “COVID-19 will become a pandemic. We don’t yet know how severe it will be, nor do we know if the virus will spread to all continents, but it’s already spreading widely in China, South Korea, Italy, Iran and elsewhere…”
As investors, we must follow this trend. Today, I’m going to discuss the possible impact of COVID-19 on the technology markets… And I’ll reveal why this could also be presenting an interesting opportunity for investors.
Supply Chain Struggles
There are already estimates that China’s real GDP growth will fall below 4% compared to the 6% growth rate last quarter due to the virus. This is due to the slowdown in production from closed factories and quarantines, which are affecting supply chains for numerous industries.
In early February, Foxconn, also known as Hon Hai Precision Industries, halted almost all its production in mainland China due to the coronavirus. Foxconn is the world’s largest contract manufacturer and is the company that manufactures Apple’s iPhones.
Foxconn has since restarted production, and it hopes to have production in China up to half normal levels by the end of the month.
As a result of the slowdown in China, Apple announced it was reducing sales expectations for its first quarter. This came after Apple also decided to close all 42 of its Chinese retails stores back in January due to the virus. In its announcement, the company stated that it is “experiencing a slower return to normal conditions than… anticipated.”
And this news also impacts companies that draw a significant portion of their revenue from Apple, such as Cirrus (CRUS), Broadcom (AVGO), and NXP Semiconductors (NXPI).
Aside from supply chain problems, COVID-19 also has had a chilling effect on travel and commerce. Major industry conferences continue to be a bellwether for how significant the impact of COVID-19 is on global trade.
Fourteen major tech companies pulled out of one of the largest annual cybersecurity conferences, the RSA Conference, in San Francisco. Another large tech conference, the Mobile World Congress, was outright canceled.
If there are sudden community-level outbreaks of COVID-19 in the U.S., we will have to take a far more defensive stance as investors… which means build our cash positions, step aside, and look for a bottom in the market.
But these kinds of situations can also create some of the best investment opportunities. Fear in the market can create short windows where fantastic companies are irrationally undervalued.
I’m paying close attention to companies that aren’t going to be affected by potential supply chain problems right now. And I’m also keeping a close eye on companies that are affected, as they might soon be great buys.
And, of course, COVID-19 provides its own unique investment opportunity in the biotech sector…
The Search for a Cure
Somewhat incredibly, more than 80 clinical trials are now running in China in search of a cure for COVID-19. It seems to be an act of desperation, simply throwing any compound that has a remote chance of working at the wall to see if anything sticks.
The World Health Organization (WHO) has been scrambling to help in hopes of implementing a structured protocol, so that the data coming back from the trials will be high quality, trustworthy, and analytical… and hopefully can be used to cure COVID-19.
Investors may be tempted to run out and invest in a company developing a vaccine for COVID-19. But, I would urge caution.
There are several factors to consider when looking for a good investment opportunity related to a COVID-19 vaccine or cure. Here are three things for investors to think about…
Does the biotech company have a unique approach?
Many companies have leapt to action in response to COVID-19. However, most are simply testing existing drugs or repurposing others in hopes of finding something that will work. We want to look for a company that is trying something different – something with the potential for significant returns.
What is the company’s entire pipeline?
In reality, it will take a long time to get regulatory approval for a vaccine for COVID-19. Yes, trials might accelerate due to the severity of the COVID-19 outbreak, but Food and Drug Administration (FDA) approval would still likely be something that would come much later – most certainly not in 2020.
Investors should make sure a biotech company has a pipeline of strong drug candidates and isn’t just using COVID-19 as a chance to get headlines or raise funds.
What is the company’s cash position?
Especially since gaining FDA approval can take years, it’s critical to make sure a biotech company has enough cash to go the distance. If a company runs out of money, it will likely resort to a secondary offering, which will dilute the stock. That almost always results in a large, proportionate pullback in the share price.
For non-biotech companies, this could be a concern. But this process of raising capital by selling more shares in a secondary offering is normal in the biotech world. All the same, we want to make sure we know the right time to strike so we get in at a good price…
After spending weeks analyzing companies that show promise for a cure of COVID-19, I found the company that I think has the best approach…
This company analyzed the DNA of COVID-19, and within days, it designed a synthetic drug that can teach the human body how to attack and kill the virus. It will begin clinical trials for its cure for COVID-19 within the next few months.
If any readers are interested, my research on this company is available in my latest issue of my small-cap investing service, Exponential Tech Investor. To learn more about my research… and another “must own” biotech company that’s poised to cure a form of genetic blindness… you can go here.
Editor, Exponential Tech Investor