Making the Grade

Coronavirus Outbreak Stocks Are Crashing

The Wuhan coronavirus death toll continues to be a serious concern.

The first fatality was reported on January 9.

But as of Monday morning, more than 40,000 people had been infected and 910 people worldwide had died. And that’s since the outbreak began in December.

The Wuhan coronavirus outbreak is now deadlier and more widespread than the SARS outbreak from November 2002 to July 2003.

But a couple of weeks ago, I warned investors not to get caught up in the pandemic panic.

And that there was a profitable trend we need to remember… The market anxiety over epidemics is short-lived.

Almost always, the first month of this cycle brings negative market returns. But three months out, the skies will be blue again.

So I told investors to do the opposite of what the headlines were saying – to be true contrarians. And that meant shorting or buying puts on a dozen coronavirus stocks.

This was an opportunity to inject quick profits into their portfolios. And boy, did that pay off…

Cratering Coronavirus Fortunes

Over the past three decades, the frequency of reported pandemic outbreaks has increased.

We’ve now seen eight major incidents since 2010, including the current Wuhan coronavirus.

So we’ve seen this television show before. It’s a rerun.

And that’s what investors need to keep in mind. Now you have a blueprint ready for the next outbreak… because there will be a next one.

Historically, the highs that contagion stocks experience in the early days of epidemics last far shorter than the disease itself. Initial headline panic leads to apathy and the reality that any treatment these companies create will get to market months after the outbreak has quieted.

Those first-in pathogen profiteers start exiting their positions. And share prices crumble in turn.

True to form, the dozen coronavirus companies I warned investors about have largely come crashing back down to Earth…

Chart - 12 Coronavirus Stock Share Returns

Look at that!

Of the 12 companies I mentioned, 10 have fallen since then. And eight of those have tumbled double digits.

When I published my research on the 12 coronavirus stocks to short, medicine manufacturer NanoViricides (NYSE: NNVC) was the highest flier.

Shares had stormed more than 450% since the Wuhan coronavirus outbreak began.

It’s now the biggest loser. Shares have lost more than half their value since their highs on Monday, January 27.

I also pointed out the past trends on Allied Healthcare Products (Nasdaq: AHPI), Alpha Pro Tech (NYSE: APT) and Lakeland Industries (Nasdaq: LAKE).

As a reminder, Alpha Pro and Lakeland sell hazmat suits and other protective apparel. Allied Healthcare makes respiratory products. These, not the pharma companies, are the shares you want to snag as soon as word of an outbreak spreads.

But you need to take profits quickly. Their panic-fueled peaks have a very short half-life.

Already, Allied Healthcare has been cut in half since January 27. Meanwhile, Alpha Pro Tech has lost a quarter of its value since then, and Lakeland shares have dropped more than 18%.

Only Zai Lab (Nasdaq: ZLAB) and iBio (NYSE: IBIO) have continued to tack on gains since the end of January.

Zai Labs, a China and U.S. based commercial-stage biopharmaceutical, has long been targeting autoimmune and infectious diseases in China. It had its third new drug application accepted by China’s National Medical Products Administration this week.

Penny stock iBio announced a joint initiative with Beijing CC-Pharming to develop and test a new vaccine for Wuhan coronavirus using iBio’s FastPharming system on February 3. This triggered a big jump in shares.

But to remain compliant with the New York Stock Exchange, iBio either must do a reverse stock split by June 9 or see a major improvement in its share price. That’s a long-term overhang for the company.

The Outbreak Blueprint

When it first hit the scene, the Wuhan coronavirus triggered a global sell-off. But I warned investors not to fall for that head fake.

Instead, I proposed to look for opportunities to snag quality companies for cheap. And to short or buy puts on coronavirus stocks.

Since then, the Dow Jones Industrial Average, the Nasdaq and the S&P 500 have hit new all-time highs. While coronavirus shares have been shredded, as predicted.

Remember, these are the trends we’re here to identify!

You now have a blueprint to follow in the future. And its one that’s paid off already in the past couple of weeks.

Here’s to high returns,

Matthew