Make These Contrarian Plays Before the Market’s “Vaccine Fever” Breaks

It’s going to be a long, long time before we can all safely get on a cruise ship again.

But based on the action we saw on Monday, with cruise line Carnival Corp. (CCL) skyrocketing up 39.29% by close, you’d think that it had been announced that Covid-19 had been eradicated.

In reality, the announcement that we did get was that American pharma giant Pfizer Inc. (PFE) and its German biotech partner BioNTech SE (BNTX) released some preliminary results from their Phase 3 trial for a Covid-19 vaccine, showing that the vaccine candidate prevented over 90% of Covid-19 infections.

As a result, the Dow shot up 6%, the Russell 2000 index of small-cap stocks up spiked 7.5% at one point, and the S&P 500 was up 4.5%.

Meanwhile, the tech-centric Nasdaq was flat for most of the day, and closed down 2%. Big names like Amazon.com Inc. (AMZN) and Facebook Inc. (FB), which had been winning stocks for most of this year with the pandemic forcing us to stay indoors, closed down 5%.

Netflix Inc. (NFLX) was punished even worse, closing at -8.59%.

Clearly, optimism for a vaccine is one of the biggest potential market movers right now.

And look, there’s no denying that the vaccine news from Pfizer and BioNTech is amazing. It’s a great accomplishment – and may even be remembered as the “moon landing” of this generation. The fastest vaccines ever produced are the Measles Mumps Rubella (MMR) vaccine and the Ebola vaccine – both took between four and five years. We now have a vaccine that could be in available in less than a year. Just, wow.

But what many traders and investors are forgetting here is the production and distribution timeline. While hope for a brighter tomorrow is something we’ve all needed for a long time now, expectations need to be tempered.

In the meantime, this week’s price movements have created some amazing profit opportunities as reality sets in on this over-exuberant market. And they’re not in the stocks that the rest of the market is flooding into right now.

Here’s how to play it…

Most Americans are Many Months Away from Getting a Covid-19 Vaccine

Yesterday’s vaccine news is truly fantastic. It shows we’ve been able to develop a vaccine in record time.

Not only that, but the preliminary data suggests that we hit the 90% effectiveness mark on our first try. Some vaccines never reach that high an effectiveness. Given how agile the regular coronaviruses that cause a third of the common cold are, many experts thought we’d be able to prevent at most 60%-70% in this first round of vaccines, at best.

This goes to show how much ingenuity and creativity we can unlock when we put aside politics and stop thinking in terms of “what side will benefit from this…”

And instead work together to solve the problems we all face.

This is an astonishing achievement, and everyone involved deserves our heartfelt thanks.

Having said that, what happened in the markets yesterday was an overreaction – a case of irrational exuberance. To take just one example, Carnival Cruise Lines are not about to make more money anytime soon, despite the good news from Pfizer.

Because the actual production and distribution timelines are very different than what yesterday’s stock rally might make you think. The great result from Pfizer and BioNTech was only preliminary. We still haven’t seen the underlying data for it, and the vaccine candidate’s late-stage Phase 3 trial is still going on.

When that finishes and the safety and efficacy data both look good, the companies will reach out to the FDA for emergency approval. If everything goes according to plan, that could happen before the end of the month.

That may well go off without a hitch, but it also may not. After all, this vaccine is being developed at record speeds. For one, the technology this vaccine uses to provoke our bodies into creating antibodies against the Covid-19 virus has never been commercially used before.

But even if it all goes according to plan, the next hurdle is logistics. There are about 330 million people in America, and about 7.8 billion people on the planet. Ideally, every single one of us or as close to it as we can get will have to get vaccinated to put an end to Covid-19.

This Pfizer/BioNTech vaccine takes two shots per person to create immunity. So that’s 15.6 billion shots of the vaccine that we’d need to make. Even if we want to only immunize America, that’s still 660 million shots.

Even that smaller number, to put it mildly, is a tall order. It’s certainly not going to happen overnight, or in time for Christmas.

And remember, immunizing only a small part of the population won’t put enough people on planes and ships to increase revenues for international airlines or cruise lines.

In fact, Pfizer and BioNTech say they will have 50 million doses of their vaccine ready by the end of 2020. That’s enough for 25 million people.

These shots are going to go to healthcare workers, first responders, and other at-risk groups –and not just in America. The companies have already signed deals with:

  • the European Union for 200 million doses, with an option for 100 million more
  • Japan for 120 million doses
  • the U.S. for 100 million doses, with an option for 500 million more.

Meanwhile, Pfizer and BioNTech estimate they can make a total of 1.3 billion doses by the end of 2021. Now, this is nothing short of amazing, there’s no doubt about that.

But that’s still only enough for 650 million people per year. And in the interest of equity and fairness, the companies will presumably prioritize the deals I just mentioned before moving on to the optional extensions.

In short, in the absolutely best-case scenario, we’re looking at 75 million to maybe 100 million Americans getting the Pfizer/BioNTech vaccine by the end of next year.

That’s just not enough to let us all dine out, hop on cruises, and dance mask-less in the streets.

It’s an amazing achievement if and when it happens. But it’s not enough to justify the huge price leap that stocks of companies victimized by the stay at home quarantines enjoyed.

Of course, Pfizer and BioNTech aren’t the only companies trying to make a Covid-19 vaccine. There are two other candidate vaccines that could get emergency approval before the end of the year.

They would help, but it’s still not going to end Covid-19 overnight…

More Vaccines is Better, But There Will Be No Instant Return to the Old Normal

Moderna Inc. (MRNA) is another frontrunner in the race for a Covid-19 vaccine. Its candidate is also in Phase 3 trials, and it uses an approach that’s very similar to Pfizer’s.

That’s good news given that Pfizer’s seems to work, but if there are problems in one, they could well show up in the other, too.

If Moderna’s Phase 3 trial yields good results on both how safe and how effective the vaccine is, it could also get emergency approval before 2021.

Just like Pfizer’s vaccine, Moderna’s also requires two shots per person to create immunity. That again makes the logistics much more difficult. The company says it will have 20 million doses “ready to ship in the U.S.” by the end of the year, which means 10 million people will be able to get shots.

After that first batch, Moderna says it will be able to make 1 billion doses a year, with 100 million already pre-ordered by the U.S.

The third vaccine candidate that could get approved this year is the one being developed by Johnson & Johnson (JNJ) and the Harvard-affiliated Beth Israel Deaconess Medical Center in Boston. This vaccine is the only one that’s currently in Phase 3 trials that seems to work with just one shot.

As you’ve seen, that’s a huge advantage. Not only does it make production more efficient, but distributing the shots also becomes much easier.

Johnson & Johnson also expect results by the end of the year, and the U.S. has already pre-ordered 100 million doses for $1 billion. The company expects to be able to create 1 billion doses by the end of 2021.

All in all, that means if all goes according to plan, all three vaccines work and get approved, and there are no production hiccups, we may have enough shots to vaccinate every American in the first quarter or two of next year.

That’s assuming there are no production overlaps and that the roll-out of the vaccines goes off without a hitch. The data suggests that’s unlikely. According to surveys from the respected Pew Research Center, 49% of American adults would probably not or definitely not get a Covid-19 vaccine.

At that rate, it’s going to be a long slog back to a world without Covid-19.

In any event, as you can see traders and investors got overly excited by the Pfizer vaccine news. They got a sudden infusion of hope, but the reality of how to get there still hasn’t set in.

But it’s about to, because the vaccines still have a long road ahead of them.

Here’s how to trade it…

Two Kinds of Stocks Call for Two Different Strategies

First, we have the stocks that have been the victims of this year’s stay-at-home trend. These are the airlines, cruise lines, theme parks, sit-down restaurants, hotels, and so on.

They all rallied immensely on Monday as Pfizer released its news.

But as we’ve discussed, these companies are a long way off from starting to make more money because of vaccines. We’re quarters away from that making any impact on the bottom lines of travel and hospitality companies.

That’s already becoming apparent, and these stocks started dropping on Tuesday. Shorting them right now could be a very profitable trade. My two favorite shorting candidates are Carnival Corp (CCL) and Wynn Resorts Ltd (WYNN). Here are the charts with first profit targets:

CCL:

Look to short shares of CCL while they’re still in the $16.50 to $18 range. Take profits on half of your shares when they dip below the prior resistance level of $16. I’d recommend exiting the position when shares fall to around $14.50, just above where the price was sitting before the Pfizer announcement.

WYNN:

On this short, you’d be best to enter the position with the stock above $94. Look to take profits on the first half of your shares at $85, and close the rest of the trade at $77.

Second, we have the work-from-home stocks that have been the darlings of the stock market this year. These are the firms that have been crucial to enabling millions of people to keep working from home, including web conference firm Zoom Video Communications Inc. (ZM), cloud provider Microsoft Corp. (MSFT), and online document management company DocuSign Inc. (DOCU). All three closed down yesterday, with Zoom and DocuSign both down about 15%.

The change to working from home may have been kick started by Covid-19, but there’s no turning it back – not fully. This is now a systemic change. People have moved, set up home offices, and learned new habits because of it.

Most importantly, millions of people prefer it, cost and efficiency benefits are clear, and there’s no putting this cat back in the bag now.

These work-from-home stocks have been punished way too hard, and will soon rebound. So buy them on the dip for some easy profits. Though ZM has the bigger short-term upside, I particularly like the technical set-up on MSFT. As you can see, the stock recently broke through a strong resistance level and has fallen back to it as support, giving us a great entry position:

I think MSFT is a great buy in the $210-215 range. Set your first profit target at $230, and your final target at $240.

(Please note: these prices of the stocks I’ve recommended in this article are somewhat volatile at the moment and may currently be outside of the entry price range I’ve provided. If so, you can choose to either enter the position at current price, or wait a day or two to see if you can get a better entry position.)

Great trading, stay safe out there, and God bless you,


D.R. Barton, Jr.

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