The race to find a COVID-19 vaccine is well underway and many research efforts are already into Phase 3 of clinical trials. With a potential vaccine seemingly within our grasp, authorities around the globe have indicated a willingness to fast-track approvals.
In the UK, the government has announced a three-week consultation to amend the Human Medicines Regulations 2012. This will allow fast-tracked vaccine approval by as early as October this year. This initiative is being combined with a large scale vaccine administration training program, delivered in the hope that rapid inoculation of the population can be achieved.
Similarly, The European Medicines Agency (EMA) has also indicated that it will speed up its approvals process. This is expected to take a little longer than the UK process. Stateside the FDA has just announced it also intends to do the same.
Rush could make pandemic worse, scientists warn
Respected WHO adviser and Oxford University Professor, Sir Richard Peto, has issued a stern warning, stating that the rush to find a vaccine will make the health crisis worse. Peto warns that there is currently a “nationalistic rush… to be absolutely first to register a vaccine.” This, he claims, threatens to see ineffective vaccines being deployed.
The effect of this would be to sideline other vaccines currently in development, which have greater efficacy, ultimately prolonging the outbreak even further. Worse still, Peto says “deployment of a weakly effective vaccine could actually worsen the Covid-19 pandemic if authorities wrongly assume it causes a substantial reduction in risk, or if vaccinated individuals wrongly believe they are immune, hence reducing implementation of, or compliance with, other Covid-19 control measures.”
COVID-19 is far from over, so where to invest?
Even without the additional vaccine race risks, there are already fears that a worsening of the crisis is likely as the northern hemisphere approaches winter. This should indicate to investors that stocks and sectors that have demonstrated strength in the face of COVID-19 should be key areas of focus.
Any significant worsening of the situation, whether that be unforeseen lengthening or above-expected infection and mortality rates, is likely to be a repeat of what we’ve already seen. Thus, by targeting stocks and sectors that performed well during the crisis, the potential losses from any mass selloffs in the event of any future dips in the market will be limited. Investors will be looking to the past for indicators of the future. They will be more willing to hold on in sectors that performed well and, as the market rebounds again, the upside potential will likely prove to be even greater than during the first recovery.
COVID-19 is not a sure thing, however
Of course, there’s every possibility that the crisis improves rapidly. If a vaccine that’s rushed through does prove to be effective, the situation would evolve just as rapidly as the initial outbreak took hold. This could spell trouble for stocks whose success depends on the current state of the world.
What this means for investors is that a stock’s potential to perform, regardless of the state of the health crisis, is also critical when making decisions. This can be achieved by looking at what’s driving growth within a company and considering it in a broader context.
In sickness and in health: four underlooked stocks investors should be watching now
Briefly recapping what has been covered, investors looking for stock picks at this time should be keeping a number of things in mind:
- Will the stock hold onto its value in the face of any adverse COVID-19 developments?
- Will the stock continue to perform well throughout an enduring crisis?
- Is the stock’s potential independent from the crisis?
- Is the stock fundamentally currently undervalued?
These questions form the minimum criteria used in selecting the following four stocks. This should see them not only weathering all health crisis developments but also delivering market-beating returns.
Alimentation Couche-Tard Inc. (TSX: ATD.B)
Given physical retail’s ongoing woes that only worsened with the pandemic, this may be one of the more unexpected selections. But Couche-Tard have taken flagging retail sales and the global health crisis in its stride, delivering a 44% surge in profit, despite falling fuel sales. The company attributes this to sustained growth in average basket size, which was accelerated by the pandemic as shoppers started relying on convenience stores closer to home.
But the true potential of this stock lies in its undervaluation by investors—currently trading at less than four times its book value—combined with its strong liquidity position putting it in prime position for any future merger and acquisition opportunities.
The reason that this stock is potentially overlooked can be attributed to its docile management team. The team refused to get sucked into a bidding war with 7-Eleven when the Marathon Petroleum’s Speedway sold off its gas stations, preferring to look for long term value rather than a short term bump in share price as investors trade the news.
This makes the stock look a little dull to a lot of traders and even longer-term investors who would rather see a little more excitement and action on which to trade. This makes it a great pick for an investor willing to hold and wait. Couche-Tard is a stable company delivering consistent profits, and the stock is already undervalued. When its management team do finally pull the trigger on an acquisition deal, its shares will balloon on announcement.
Leaf Mobile Inc. (TSX.V: LEAF)
Leaf Mobile acquired LDRLY studios earlier this year. This was a smart move that propelled them to their just announced record Q2 results which saw revenues surging by +84% over the previous quarter, jumping from $8.4M to $14.7M.
As producers of counter-cultural cannabis games, they’re already players in an industry that was experiencing massive growth prior to the pandemic. This means it is different from other tech stocks like Zoom, whose current success is dependant on people staying home. All coronavirus has done is to accelerate growth that was already underway.
In fact, this industry is growing so big that SuperData estimates that millennials are spending an average of $112 per capita, per month on gaming content.
The real strength in this pick, however, is that Leaf’s smaller size saw it being largely ignored by investors as other video gaming stocks took off. So much so that the market has barely reacted to its Q2 announcement. This has left it undervalued and ready to take off as it brings its upcoming counter cultural game collaboration with B-Real—a rapper of Cyprus Hill fame—to market and starts gaining investor awareness.
Zadar Ventures Ltd. (TSX.V: ZAD)
Another company making intelligent acquisitions is Zadar Ventures, who recently announced their intention to acquire VR and AR tech firm XRApplied.
What makes this investment COVID-proof is, again, XRApplied’s positioning in an industry that was booming prior to the health crisis taking a hold. Just how much was extended reality booming? According to estimates in a report by PricewaterhouseCoopers, the market is expected to grow from its $46.4B contribution to global GDP in 2019, to $1.5T by 2030. That’s roughly 3200%.
What makes their technology particularly resilient in the face of potential COVID volatility is that they’re specialized in the B2B market. Their intellectual property forms the building blocks needed to rapidly develop and deploy a broad range of VR and AR applications, enabling them to cater to any shifts in the market demands. Whether it be a rapid increase in demand for video conferencing tools, or the automotive industry seeking to streamline the prototyping process.
Rockridge Resources Ltd. (TSX.V: ROCK)
Gold mining stocks have been getting a lot of hype recently. Particularly after Buffett went against his own advice and purchased stocks in Barrick Gold. This could leave some gold stocks potentially overbought in the face of a rapid improvement in the global health crisis.
Despite this, Rockridge Resources has largely flown under the radar making it a good pick. Although its share price has risen mildly in the months following the outbreak, it has barely mirrored the gains in the broader mining industry. Added to this is the significant discovery of high-grade gold deposits at its Raney Gold Project, where intercepts as high as 28g/t gold were discovered.
With a significant discovery already under its belt and further exploration work about to get underway at this promising site, its potential for growth is solid. The fact that it has remained somewhat underbought through its recent discovery announcements and the COVID crisis means the potential selloff on any adverse news will be limited. That is if any selloff even occurs.
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