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Coronavirus Vaccine: Get Your Portfolio Ready for a Shot in the Arm

Wednesday, July 01, 2020 07:17 AM | Neal Farmer

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Coronavirus Vaccine: Get Your Portfolio Ready for a Shot in the Arm

While many questions still linger about when, and even if, a vaccine for COVID-19 will be available, people should also be wondering how a coronavirus cure would actually be distributed. 

The allocation and price of a vaccine will have a major impact on how fast the economy recovers. Investors should be aware of how those decisions may impact their portfolios and what to do to prepare.

Who Will Pay for the Vaccine

No one knows whether a vaccine will be found in the near or distant future, or who will find it. Whichever country, and company,  actually finds a cure will surely benefit greatly from the discovery. 

Who is going to pay to deliver the vaccine to billions of people around the world has yet to be determined. It will likely look different in each country. There have been calls to make the vaccine free to consumers in the U.S., but no funding or other decision has been made yet in that regard.

So far, despite promises from politicians, testing and treatment are being paid for by patients, or their insurance companies. 

If that is the route that funding for a vaccine takes in the U.S., it likely means a longer recovery, as people will be slower to get a vaccine they have to pay out of pocket for. It would be almost unprecedented for every insurance company to agree to cover the vaccine at no cost to patients, and that still leaves the millions with no health insurance to pay out of pocket. 

How Will it be Distributed

Should a vaccine be found, the United States and other countries will do what they can to get everyone vaccinated. This will undoubtedly lead to some people receiving the vaccine first, while others have to wait. 

Who gets the vaccine first is likely to be a point of considerable debate. Good arguments can be made for any number of distribution plans. The most fair way may be  a random selection process similar to how the popular movie Contagion selected people by birthday. Either way some people will receive the vaccine earlier based on either priority or knowing someone with the right connections.

What may even be more interesting is how a vaccine crosses borders between countries. Nations will trade with each other if a cure is found. Of course the country that developed the vaccine will likely trade it with foreign governments and be paid by them, but it would be interesting to see which countries are prioritized.Will a country try to vaccinate all of its citizens first before allowing other countries access to the vaccine? Will other nations be given the process for making the vaccine so they can manufacture their own supply? 

The best outcome for investors is that the vaccine is free and widely available, even if this means the company that discovers the vaccine doesn’t maximize its profits. Investors will see benefits across their portfolios from a rapidly vaccinated population that quickly returns to normal. Since most investors don’t just buy a single stock, those broad gains across a portfolio would likely outstrip gains posted by a single company trying to maximize profits on a vaccine, which would lengthen the recovery.

Sectors to Invest in Should a Vaccine be Found

While people wait for a cure to be developed, investors should be focusing on how to maximize their gains when the time comes.

It stands to reason that if there is a sudden end to the pandemic, the market and economy will boom. The exact strength of that boom can be debated depending on some of the factors above, but there are certain sectors of the economy that investors should look to for the best performance.

Consumer defensive stocks such as Walmart (WMT) and Costco (COST) performed very strongly when the pandemic spread as people flocked to stores to stock up for quarantine. Their performance continued as individuals cut out unnecessary costs in order to afford their groceries and other necessities. These may underperform relative to other retailers as the economy recovers. Stocks like Clorox (CLX) and other cleaning products are also likely to struggle as demand for constant sanitation wanes (although it's not a bad habit still). Utilities likely won't realize much of a boom either compared to the rest of the economy.

The likely biggest leaders of a vaccine-fueled rally would be the travel industry, real estate, and consumer cyclical stocks. Airlines and cruise lines are two of the first industries that come to mind when thinking of what will gain the most. A vaccine will help these two industries as people grow confident in sharing public spaces again. Cruise lines like Carnival (CCL), Royal Carribean (RCL) and Norwegian (NLCH) are still on hold as the world awaits for coronavirus cases to fall. Not only would the increased confidence help these industries to restart, but an improved economy will boost spending as people get their jobs back. 

Automobile companies like Tesla (TSLA) and Ford (F) will similarly experience strong growth. Commodities will rally as well. Real Estate and retail would receive a huge boost from a cure as quarantine restrictions are lifted and people start doing more non-essential spending. Investors in real estate will have to pay attention to which regions benefit the most from a vaccine. New York City real estate will likely see bigger gains than South Dakota as cities have been hit harder by the pandemic.

Two sectors that may lag behind the rest of the market are Technology and even Healthcare. Tech stocks have led the rally since the market lows on March 23, Those companies are not reliant on physical locations and people stuck at home did even more things online. Stocks like Amazon (AMZN) and Zoom (ZM) may have already seen their COVID-19 booms. 

The reason healthcare may lag is that many healthcare stocks have performed strongly during the pandemic and many will actually be hurt by the development of a cure. Whoever does discover a vaccine will surely see a massive gain but competing vaccine developers may see a drop in their price as their vaccine research will be less profitable, if it is profitable at all. Many biotech stocks are overvalued at this point due to speculation about which one may develop a vaccine first. Investors can speculate on who will find the cure, but allocating too many resources to healthcare stocks might lead to the portfolio as a whole underperforming once a vaccination is found.

Wrapping Up

Hopefully a COVID-19 vaccination is discovered soon but it is no guarantee. It will be interesting to see how a cure is distributed worldwide. Before that occurs though, investors should be paying attention to the market and making sure their portfolios are optimized to take advantage of the rally should a cure be found. Diversification is always smart and strong performers in March and April may not be the best choices in the future. Focusing on the long term in this volatile market might be the smartest decision as analysts struggle to determine what will happen in the near future.

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