Of the 100+ coronavirus vaccines under investigation, some, like the one being developed by Oxford University and AstraZeneca, are showing real promise in clinical trials. In fact, Russia granted regulatory approval for a vaccine yesterday, although doubt has been expressed about the approval process and the efficacy of the vaccine.
Holding the stock of the company that develops a vaccine first might seem like the path to profit. However, some developers are private. Others are public companies but their stock is difficult to trade for UK investors. Those aren’t the only hurdles to successfully picking a successful coronavirus vaccine investment.
Coronavirus vaccine success
Developing a vaccine is one thing. Mass producing it is another. An investor might be able to back the right developer, only for them to struggle to produce enough doses. A company cannot truly win the vaccine race if multiple vaccines are approved. Another issue is that developers are rightly making promises to sell at least a chunk of vaccines at cost.
To my mind, a better bet for profiting from a coronavirus vaccine is to back stocks that will do well regardless of who wins the vaccine race. Getting the world back to normal will happen faster with a vaccine than without one. Travel and leisure stocks were particularly badly hit by the coronavirus market crash. It stands to reason that they should benefit substantially from a return to normality, particularly if it does not take as long as had been feared.
Stocks that win regardless
I think InterContinental Hotels is a potential coronavirus vaccine success stock. It already has 95% of its sites open for business. Although the company reported a loss of $275m for the first half of 2020, this was not as bad as expected and included $255m in exceptional, and mainly non-cash, charges. A free cash outflow of $66m over the first six months of this year was better than expected.
Domestic travel is recovering faster than international. IHG’s core US business is benefitting from this, as are its other operations in countries across the world. IHG owns hotel brands that cater to every segment, from budget domestic right up to luxury international. Therefore it will cumulatively pick up revenues as different groups of travellers get back on the road, even without a vaccine. With a vaccine, IHG’s share price should get a real boost and shareholders would start receiving dividends sooner.
Another stock I think could boom with a coronavirus vaccine is National Express. After a strong bounce back from the depth of the coronavirus market crash, the share price of the US and European coach, school bus, and rail service operator has slumped again. A departing CEO selling his shares did not help. However, National Express earned record sales and profits in 2019, after a near decade-long turnaround.
National Express has slashed costs, raised equity, and has about £1.5bn in cash and credit. The company looks well-positioned for a staged recovery in travel. Again, this stock has the advantage of drawing a lot of business from domestic travel. A coronavirus vaccine will return the world closer to normal patterns of travel much quicker and should give the National Express share price a real boost.
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James J. McCombie owns shares of National Express Group. The Motley Fool UK has recommended InterContinental Hotels Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020