One of the dramatic shifts in our “new normal” is that several mundane businesses have suddenly exploded in demand. Among the biggest beneficiaries of this surge in interest is industrial giant 3M (NYSE:MMM). Previously an increasingly irrelevant organization, 3M’s N95 facemask division became a matter of national security. But without adequate production, smaller companies like Alpha Pro Tech (NYSEAMERICAN:APT) have also emerged into the spotlight. Consequently, very few names have skyrocketed quite like APT stock.
Source: Pavel Kapysh / Shutterstock.com
But should you gamble on this speculative organization?
Admittedly, recent news makes it appear that APT stock still has some legs. As I mentioned, companies like 3M have ramped up production of personal protective equipment (PPE) such as face masks. However, accusations of immoral profiteering have plagued 3M and the broader PPE industry.
Most notably, Fox Business host Maria Bartiromo grilled 3M CEO Mike Roman on various issues. Easily the most troubling accusation is that the industrial giant sold their PPEs to the highest bidder, including representatives of foreign countries. You can tell from the interview that Bartiromo was doing her utter best to hide her disgust.
I back her views 100%. In this circumstance, you can see how a company like Alpha Pro Tech, which doesn’t have the PR glare of 3M, may benefit; hence, the case for APT stock.
The controversy regarding 3M didn’t get better until President Donald Trump invoked the Defense Production Act. Suddenly, 3M changed their tune, understanding that the federal government wasn’t messing around. As such, PPEs originally destined for foreign countries will now go back to American hands.
Still, this fiasco demonstrates the great need for PPEs, which for now supports APT stock.
A Narrowing Buy Case for APT Stock
Still, at some point and perhaps very soon, the question will become, how long will the bullish argument for this company last? If the relationship between the Alpha Pro Tech’s technical chart and global coronavirus cases is any indication, we may be nearing the end of this Cinderella story.
From around mid-January toward the end of the month, Alpha Pro Tech stock surged 120%. At the time, media reports indicated that China was suffering from a mysterious, infectious disease. Several days before Chinese coronavirus cases hit four digits, speculators reasoned that the outbreak would get much worse.
Click to Enlarge
Source: Chart by Matt McCall Research Team
Plus, it also helped that APT stock was very cheap on paper. Therefore, just a little bit of sentiment was enough to move shares substantially due to the law of small numbers.
But following the 120% surge, shares steadily came back down to earth. Still, it wasn’t done moving. In the second half of February, speculators anticipated that Covid-19 would turn into a devastating pandemic. Foreseeing massive shortages for PPEs, they again bid up APT stock, from just under $5 to over $25.
Like clockwork, following this 414% lift, shares again steadily deteriorated to where we are now at $12. To believe the optimists means that you anticipate another meaningful surge in coronavirus cases.
Here’s the problem — mathematically, we’re seeing case growth decelerate sharply. I’m not an epidemiologist, but that’s not my point. Instead, I think the low-hanging fruit for this stock is gone.
In the first major spike of coronavirus infections (when APT stock jumped 120%), case growth increased by 14,489%. In the second spike, cases grew by 1,591% — significant, yes, but not nearly enough to take a gamble on Alpha Pro Tech.
Don’t Repeat History Lessons
In the spirit of full disclosure, a long-term buy argument for APT exists. With harsh lessons learned regarding this pandemic, both individuals and government agencies will prioritize preparedness. Therefore, the runway for Alpha Pro Tech could be longer than many skeptics anticipate.
Ultimately, I don’t think it matters. For investors to truly feel confident in APT stock, they need to know that shares will grow based off more than just a single catalyst. Historically, that’s never been the case.
Pull up a long-term chart and you’ll see what I mean. Back during the H1N1 pandemic, this company enjoyed a rapid burst in market value. But as the outbreak faded, so too did shares. A few years ago, America was gripped with Ebola fears. Again, it jumped but just as quickly, it fell apart.
While APT stock could linger longer this time around, I don’t see any fundamental justification for it. Being the same old company, I’ll continue to avoid Alpha Pro Tech.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
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