During pre-market time on Monday, November 9, Pfizer (PFE) and Biontech (BNTX) announced very encouraging interim data for its Covid-19 vaccine. This news has big implications for the stock market. Or, should we call the stock market?
Value stocks reacted very positively, while growth stocks lagged behind on Monday. This significant discrepancy was evident in the indices: the Dow Jones (DIA) lost 2.98%, the S&P 500 (SPY) 1.17% and the Nasdaq (QQQ) lost -1.53%.
At the level of individual stocks, stay-at-home sentiment stocks such as Amazon (AMZ), Wafer (W) and Zoom (ZM) lost 5.06%, 21.85% and 17.37% in one day, respectively. In contrast, Carnival Corp. (CCL), Delta Air Lines (DAL) and Darden Restaurant (DRI), the companies affected by the epidemic, increased by 38.99%, 17.03% and 18.05% respectively in a single day.
With all this news and stock market volatility, it is very difficult to separate rumors from facts. Was the vaccine data really that important and did future value stocks evolve? The same will be discussed in this article.
A quick look at the vaccine data
Pfizer is one of the largest pharmaceutical companies in the world, and Bayonet Tech S.O.A. Covid-19 has been dedicated in recent months to developing a vaccine as a cooperative of the virus, which has caused more than 1.2 million global deaths to date.
After reading the pre-clinical and clinical studies of many RNA vaccine candidates, BNT162B2 has been selected as the lead candidate in late July.
At that time, Pfizer and Bioentech decided to start a global phase 2/3 study of 30,000 participants, which was later increased to 44,000 participants.
Here’s how Pfizer described the trial:
The Phase 2/3 trial is designed as a 1: 1 vaccine candidate, to obtain the efficacy data required for placebo, randomized, observer-blind studies, safety, immune response, and regulatory review. The primary endpoints of the trial, which were not previously infected with SARS-CoV-2 before vaccination, and participants who were previously infected with SARS-CoV-2, would be COVID-19 prevention regardless. Secondary endpoints include severe COVID-19 prevention in those groups.
On November 9, Pfizer released an interim analysis of 2/3 phase data that pushed the market further. External, Independent Data Monitoring Committee (“DMC”) analyzed that the vaccine has one Effectiveness rate above 90% 7 days after the second dose of the vaccine, indicating that the vaccine protects humans from the COVID-19 virus 28 days after the first initiation. Importantly, no safety concerns were observed.
Pfizer now expects Full vaccine data is available in the third week of November Potential Emergency Use Author to be eligible for Thoracization.
Given this strong efficacy and safety reading, it is very likely that the Pfizer / Bioentech vaccine will be approved in 2020. Pfizer announced that it expects to produce 50 million vaccines in 2020 and 1.3 billion in 2021. They have agreements with the USA, EU and Japan for 600 million, 200 million and 120 million doses, respectively.
Moreover, this expected reading-expectation is optimistic to read other vaccines in the coming months from pharma companies such as AstraZeneca (AZN), Johnson & Johnson (JNJ) and Moderna (MRNA).
As such, it is expected that the majority of the world’s population will be vaccinated by 2021 and that life may return to normal. So, what are the main gifts of this news for value stocks?
(Source: Tatkalin News.com)
Vaccine expected effect on value stocks
Over the past month, I’ve written many articles regarding the relative performance of growth stocks compared to value stocks. Until last week, value stocks were the cheapest compared to growth stocks from the dot dot bubble, as you can see in the chart below.
This trend of performance of growth stocks has been going on for many years, and has increased due to the Covid-19 crisis, as this accelerates the digital transition and puts temporary pressure on the financial affairs of value stocks. In particular, large tech stocks such as Facebook (FB), Apple Pull (AAPL), Micro .ft (MSFT), Amazon and Google (Google, Giguel) accelerated the trend.
(Source: JP Morgan Research)
Instead of being misled by sentiment, we always stay with the fundamentals in the inner opportunities: the valuation of the stock is based on this. All Future cash flow discounted today.
If the long-term perspective of the underlying company is not harmed, The short-term impact of the financial crisis should only have a small effect on the share price.
In contrast, we saw that many value stocks were armed by the market, resulting in the share prices of these companies falling far below their intrinsic value. We took these shopping opportunities with both hands.
(Source: Internal Opportunities)
Is there still room for value stocks after this recent performance? We believe there is.
We believe that this latest Pfizer announcement was the first catalyst for Value Stocks to start outperforming. In the coming months, more positive vaccine data (starting with possible approval for Pfizer in the third week of November) and a gradual improvement in the quarterly finances are expected to further improve value stocks.
Another positive sign for Value Shares is that Warren Buffett’s Berkshire Hathaway (BRKA, BRKB) increased its share buybacks to 9 9 billion in the third quarter, from 2 5.1 billion in Q2. This is a positive indicator that the worst in value stocks may be behind us.
As you can see in the JPMorgan chart, there is still a big difference in valuation in value stocks to fill compared to growth stocks. The more this gap narrows, the more we will start recommending growth stocks again.
But be careful not to catch your emotions
Just as we warned investors to stay away from sentiment-based growth stocks last month, we also want to warn investors in many value stocks today to hold on to short-term strong sentiment.
Let me repeat the important sentence of the previous paragraph, but with emphasis on the first part:
If the long-term perspective of the underlying company is not harmed, The short-term impact of the financial crisis should only have a negligible effect on the share price.
As expected, the most-valued “value” stocks during the epidemic were the biggest losers on vaccine news. However, it is important to note that many of these stocks have suffered losses due to the epidemic from a long-term perspective.
For example, cruise lines and entertainment stocks such as the Norwegian Cruise Line (NCLH), AMC Entertainment (AMC) and Six Flags (SIX) need to either raise debt or raise equity to shareholders. This short-term collapse had such a significant impact on their balance sheets that they are unlikely to make good long-term investments.
Moreover, we believe that many industries are facing long-term hurdles from this epidemic. For example, the shift from department stores to shopping online shopping has accelerated and is unlikely to slow down. Today’s Amazon are long-term winners, and we believe that stocks like Macy’s (M) and Nordstrom (JWN) will face trouble.
So, if you are looking for stocks of great value today, always remember not to get caught up in short term sentiments, but keep looking for the long term. Analysis of the impact of the epidemic on the balance sheet and the future relevance of the companies sector are two key elements.
Among the opportunities inside, we still recommend mainly new value stocks considering their relative attractiveness. However, due to the change in sentiment in the coming months, the performance in value stocks will be stronger, more attractive growth and tech stocks will be.
High quality value stocks that are still worth buying
Despite the recent appreciation of the stock, we believe that there are significant opportunities in many value stocks in the market today.
To find the winning value stocks confidently today, you should consider Join the opportunities inside, Led by internal experts, one of the most developed seeking alpha communities.
Through its proven algorithms, internal opportunity offers members opportunities Think winning stock Buy that interior. Trying a free membership Here, You will receive our current 8 exclusive high-profile picks, which will be updated regularly with new ones. Our outperforming strategy can exceed the investment targets of dozens of investors like you. Don’t hesitate to try it for free!
Advertisement: I / We have no place in any of the stocks mentioned, and have no plans to start any position in the next 72 hours. I have written this article myself, and it expresses my own opinions. I don’t get paid for it (except for finding Alpha). I have no business relationship with the stock mentioned in this article.
