The question is, should you use a fashionable trend in the market to drive investment in a stock, in this case, the tragedy of COVID-19 that is leading to many pharmaceutical companies partaking in vaccine trials.
I’ve invested in pharma companies, the question I think is really about whether a company investing in vaccine trials should influence your decision to invest or not. I think the key issue I’d look at is what is the likelihood that a company will develop a successful vaccine and profit from it. The issue with Pharma is in normal times, it costs $10-100 million to take a drug through all the stages of testing and evaluation to market, it also takes time. There will be lots of other companies trying to do the same with something like COVID, so which pony do you back?
It may be the case that most pharma stocks (i.e. the whole sector) get a boost from the sentiment around developing a COVID vaccine… but this is old news (by the time vaccine trials are public), so is likely to be factored into the price of stocks in the sector. I think this is the key insight, if you think that developing a vaccine will benefit a pharma company, it may be worth looking at an ETF/fund that spans the pharma sector. A downside of this approach is you are basically investing in all the companies that fail to be first with a vaccine as well as the one that gets there first. Remember, those companies that bet $100m and lose may suffer in their fundamentals as a consequence.
I tend to view pharma stocks as more dividend stocks. If they produce a successful drug, they tend to have a monopoly on that drug for some time and can milk the profits which can be in part paid as dividends. So for me, pharma companies are more of a long term investment for income.
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