It almost seems like a distant memory now, but the stocks of COVID-19 vaccine manufacturers were once sizzling heat. In 2020, shares became off Novavax ( NVAX 1.40% ) rose 2,700 pct. Modern ( MRNA 0.48% ) share more than quadrupled that year and rose even more at some point in 2021.
But it sizzled in the latter part of last year. Although COVID cases rose in the US and other countries due to the omicron variant, investors looked forward to what they hoped was the beginning of the end of the pandemic.
However, there are now indications that those hopes may be premature. Is it time to buy COVID vaccine lagre again?
Two reasons to buy
There are two primary reasons why investors might want to buy vaccine stocks right now. And the reasons are interconnected.
First, many of the best vaccine stocks are traded at low values. For example, shares in Novavax have a forward-to-earnings multiple of 2.8. BioNTech‘s ( BNTX 3.25% ) Future earnings multiple is less than 4.2. Moderna’s shares are traded at almost five times expected earnings.
Even though Pfizer ( PFE 0.85% ), which does not rely solely on its COVID vaccine for circulation, looks cheap. The pharma giant’s shares are currently trading at around 7.8 times expected earnings.
Secondly, it seems that the demand for COVID vaccines will not decrease in the near future. This is important because these valuation measurements are largely meaningless if vaccine sales are about to fall off a cliff.
China is experiencing its worst coronavirus outbreak since 2020. COVID cases are rising in Europe. Sewage tests suggest that another wave could also be on the way in the United States. Meanwhile, both Pfizer and Moderna have requested permission for fourth doses of their vaccines.
The uncertainty lingers
The higher number of COVID cases in different parts of the world is the main reason why vaccine stocks have increased in recent days. Modern rose almost 30% last week; BioNTech was not far behind.
However, there is still some uncertainty about the future demand for COVID vaccines. The number of doses that vaccine manufacturers sell will almost certainly decrease with fewer people left to receive the primary two-dose series.
In the United States, the federal government has taken up the tab for COVID vaccines so far. But what will happen if and when the government backs out of the picture? It is possible that the demand for the vaccines would fall significantly in that scenario.
Nor can we overlook the threat of innovation. If annual COVID boosters are needed, companies developing safe and effective combination vaccines can steal market share from rivals who do not.
My answer to our introductory question needs a bit more. I do not think it’s time to buy COVID vaccine shares as a group. But I think certain individual stocks look attractive.
Some COVID vaccine stocks are much more risky than others. E.g, Ocugen ( OCGN -0.82% ) no longer has a viable route to obtain a US emergency license for Covaxin. At the time when the company could potentially win full US approval for the vaccine, the dynamics of the market could be very different than it is now.
On the other hand, I’m pretty optimistic about Pfizer’s prospects. The company expects $ 32 billion in sales of Comirnaty, the COVID vaccine it markets with BioNTech. However, the total amount does not include additional US orders. I expect the federal government will buy more doses of Comirnaty by 2023.
Pfizer also has other growth drivers, especially its COVID pill Paxlovid. The company’s 2022 guidance required $ 22 billion in Paxlovid sales. My view is that the actual sales in total will be much higher.
I also like that Pfizer is launching its fast-growing cash stock. The major pharmaceutical manufacturer has made several important acquisitions over the last 12 months, which holds the potential to promote future growth.
Not all COVID vaccine stocks will flourish in the long run, but some will. I think Pfizer will be in the latter group.
This article represents the opinion of the author, who may disagree with the “official” recommendation position for a Motley Fool premium advisory service. We are motley! Questioning an investment dissertation – even one of our own – helps us all think critically about investing and make decisions that help us become wiser, happier and richer.