With the outbreak of the Wuhan coronavirus in China and the increasing death toll, there is little doubt that global financial markets are going to be impacted negatively. As Trump considers banning all flights to China, airline and travel companies like United Airlines (NASDAQ:UAL), Expedia (NASDAQ:EXPE), American Airlines (NASDAQ:AAL) and many more have seen their stock prices crash. There is a strong negative sentiment on the Chinese economy as a whole as the virus has shaken up many of the erstwhile strong sectors.
Overview of the virus
For those readers who are not aware, the Wuhan coronavirus first emerged in the central Chinese city of the same name through the meat and seafood markets and has spread across the country with over a thousand cases and more than a hundred deaths confirmed. It belongs to the same family of viruses as SARS (severe acute respiratory syndrome) and the MERS (Middle East respiratory syndrome). This group of crown-shaped viruses can become deadly if it causes the patient to develop lower respiratory tract illnesses such as pneumonia or bronchitis. It is highly contagious in nature, spreading through the slightest form of saliva contact, whether it is coughing or kissing. The story of the Wuhan coronavirus sounds like history repeating itself after SARS shook up global markets in 2002-03.
It is worth recalling that pharma and biotech companies catering to the respiratory system and providing anti-viral medications were the ones that appreciated the most during the time of SARS, and the current situation does not appear very different. With a strong negative sentiment prevailing in most other sectors, pharma and biotech are perhaps the only sectors that could get a boost from a new bullish sentiment resulting from this virus. Based on the nature of the virus and the expected treatments, the following four stocks could benefit hugely given their presence in the field of anti-viral respiratory medication.
Since the Wuhan coronavirus belongs to the same family as the SARS, it is important to recall those companies which benefitted the most from the SARS outbreak. While SARS may not have a defined cure even today, the most commonly prescribed form of treatment is the same as that for pneumonia. GlaxoSmithKline plc (NYSE:GSK) is one of the leaders in the space of anti-viral treatments for respiratory disorders like pneumonia.
The above chart shows how the company's stock grew as much as 35% during the SARS phase, which is quite significant for its size. It is worth highlighting that GlaxoSmithKline is a global player with its biggest markets being the U.S. and the UK. Respiratory oral health is one of its strongest segments, and it has a monopolistic position in many anti-viral medications. For example, its Shingrix vaccine for shingles is the only preventive vaccine for the disease across the globe. It has also performed strong research on HIV. The stock has appreciated by over 20% in the past twelve months and also provided a dividend yield of 4.32%, making it an excellent bet for investors.
Abbott Laboratories (NYSE:ABT) is more of a play on the diagnostics aspect rather than the treatment aspect of the Wuhan virus. The company is one of the largest global biotech giants, and one of its most important offerings relevant to the Wuhan virus situation is its diagnostic capabilities. Abbott is known to provide rapid diagnostics systems for infectious diseases along with remote patient monitoring, informatics and automation solutions that are all very relevant to diagnose the Wuhan virus victims. It also has molecular point-of-care testing for HIV, influenza A and B and RSV.
Abbott's relevance was so strong in the SARS era that it appreciated by over 30% in those times and is already up by around 22% in the past 12 months. Given the current situation, the upward momentum of the stock might continue for a while.
Gilead Sciences, Inc.
Biotech giant Gilead Sciences, Inc. (NASDAQ:GILD) was easily one of the biggest beneficiaries in the SARS outbreak, as it saw its stock appreciate more than 200% throughout the outbreak.
The reason for this appreciation is that Gilead gets most of its revenues from the anti-viral segment. The company's stock price has been stable throughout economic downturns and it is not without reason that the company has a 4.5-star business predictability rating on Gurufocus. Not only is it debt-free, it is known to distribute a good amount of dividend (current yield of 3.93%) to shareholders over and above capital appreciation. Not only has it done remarkable research on HIV, Gilead also has some very well known anti-viral brands in the market such as Atripla, Cayston, Sovaldi, Odefsey, Truvada, Biktarvy and so on. It is certainly going to be moving fast in the race to provide strong anti-viral treatments for the Wuhan coronavirus.
NanoViricides, Inc. (NNVC) is the only small, development-stage company on this list, but it is here for a reason. Since the news of the Wuhan virus outbreak, NanoViricides has seen its stock shoot up by as much as 349%.
The company, led by biotech veteran Dr. Anil Diwan, specializes in anti-viral research and had actively worked on MERS in the past. Its current research is also focused on treating viruses through its proprietary nanomedicine technology, where it uses anti-viral nanomachines known as "nanoviricides." The company has a decent pipeline of anti-viral drug candidates catering to diseases such as shingles, herpes, seasonal and potentially-epidemic influenzas, bird flu, HIV, cold sores, viral eye diseases and dengue viruses.
In fact, its most rapidly advancing drug candidate is a topical cream for the treatment of shingles, which is now advancing to the stage of IND application before progressing to human trials. While the company may not have significant revenues today, it hopes to start monetizing the progress of this cream through licensing agreements after the initial phases of the human trials. It has been one of the biggest beneficiaries of the Wuhan virus outbreak so far in terms of stock appreciation, and the upward momentum is expected to remain strong with the IND application results arriving soon.
The Wuhan coronavirus may have a huge negative impact on global markets over a span of time, but the pharma and biotech space is one where it presents a good opportunity. As its fears grip the world, companies like the ones mentioned above are working hard to capitalize on this opportunity and maximize their revenues. In such a situation, it is often beneficial for investors to be opportunistic and make the most returns through investing in these companies.
Disclosure: No positions.
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This article first appeared on GuruFocus.