| Smallcap Discoveries:
COVID-19 Stocks Are Beating the Bear Market
US weekly jobless claims spiked to a record 6.6M, roughly 10 million in 2 weeks. In 1 week half a million Canadians have asked to defer their mortgage payments, the Federal Reserve has printed trillions of new dollars and there’s now over 1.4M+ Coronavirus cases around the globe. Paul Krugman in a recent TV interview stated he believes US economic activity is down 75%
“I feel like the 2008 financial crisis was just a dry run for this,” said Kenneth S. Rogoff, a Harvard economist and co-author of a history of financial crises, “This Time Is Different: Eight Centuries of Financial Folly.”
“This is already shaping up as the deepest dive on record for the global economy for over 100 years,” he said. “Everything depends on how long it lasts, but if this goes on for a long time, it’s certainly going to be the mother of all financial crises.”
It’s not a pretty landscape, and with the Dow down 28.8% from it’s all-time high, reached less than 2 months ago, and on pace for its worst year since 2008, investors are feeling the pain.
Just a few short months ago we were calling for a micro-cap bull-market. Multiple micro-cap companies were hitting new 52-week highs, financing and institutional activity was accelerating, and liquidity was increasing.
Without being able to predict a worldwide pandemic, our timing couldn’t have been more wrong, and most of the professional money managers didn’t, and couldn’t, predict this outcome either. It was a rare black swan event that’s having widespread and severe economic impacts.
In late December, there were early warnings out of China of a novel virus outbreak. Given their alarming data sets many in the west underestimated the potential impacts of this new virus. SARS-COV2, or COVID-19 for short, would soon become a global pandemic. The potential health and economic impacts are now upon us…. And they are deep.
Life in a post-COVID-19 world is going to be different. It’s a wake-up call for many, that will impact both business and society. As examples, there may be a new generation of savers who’ve been traumatized by this experience; Businesses are going to redefine their corporate culture and working strategies. Some likely don’t lease new corporate spaces and opt for working from home strategies using software such as Zoom to communicate; healthcare will be considered a much more critical resource than ever before; Governments will look at strategic stockpiling of needed supplies including medical equipment and other products; Investors have shifted their strategies, from high-growth companies to defensible businesses with strong balance sheets.
The world is changing rapidly and so are the trends. As they say, there’s always a bull market somewhere. As we await financial results from companies to demonstrate these new trends, there’s at least one clear trend that’s emerging.
Early in March, the United States announced an emergency $8.3B in spending for the Coronavirus fight and other countries have followed suit. Canada is allocating $192M towards fighting Coronavirus. This flood of healthcare spending and money invested in drug development is likely the early kick off for a new bull market and it could be one of the biggest in our lifetime.
With virtually unlimited government funding cascading onto healthcare and biotech sectors, numerous companies will see benefits. It’s also an election year the U.S. and we believe the political landscape will shift drastically. Healthcare spending will be THE focal theme. This will further increase exposure to the sector as there is likely to be little political hesitation to placate voters who will want, and need, a stronger social healthcare system.
New policies and global political changes fueled by voters’ demands for a stronger healthcare system and future pandemic preparedness will mean more healthcare spending. To no surprise, the number of U.S. voters who would now be willing to accept some form of universal healthcare is rising. According to a survey conducted by Morning Consult, it found that 55% of U.S. voters support Medicare for all, which equated to a nine-point jump since February.
And with that, likely additional spotlight for the companies that are benefitting.
The combination of a crumbling economy and a broken healthcare system, catalyzed by the Coronavirus pandemic, creates a befitting situation ripe for change. Although there’s already been an influx of spending in both healthcare and biotech, we think it’s just the beginning as voters demand change. We believe that the cumulative efforts by voters across the globe will incite radical changes in worldwide spending on innovative new biotech and healthcare solutions.
While some companies are competently positioned to be rewarded in this dynamically shifting environment, other companies are pivoting their businesses to address immediate and urgent needs.
On that note, we’ve cobbled together a list of every Canadian listed company which have announced meaningful (Subjective) COVID-19 related news and added several other companies we believe could eventually benefit.
SONA.CSE – TTD.V – LBL.V – RVV.CSE – IPA.V – MBX.TO – VMD.TO – PTQ.V – AGN.CSE – COV.V – RIW.CSE – IFA.V – PKG.CSE – ARCH.V – EHT.V – LITT – GENX.V – VIS.V – VXL.V – SQD – VENZ.V – DM.V—ISD.V – GGG.V – LXG.V.
When there’s a new market trend many companies take advantage of the opportunity to tout or promote their involvement in the theme. It’s become so blatant lately that IIROC (Canadian stock market regulators) have been halting any company that announces Coronavirus or COVID-19 in its headline. However, there are companies truly benefitting from the Coronavirus and we want to highlight a few we are currently watching.
Sona Nanotech Inc., (SONA-CSE) |
