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Home Investing Strategy Get Smart: Vaccines Ignite Hope for Swift Recovery

Get Smart: Vaccines Ignite Hope for Swift Recovery

By now, you should have heard about Pfizer’s (NYSE: PFE) potential vaccine.

It’s good news for humanity.

Earlier this week, there was even more good news when Moderna (NASDAQ: MRNA) reported results from its own experimental vaccine, which had a 94.5% effective rate in preventing COVID-19 based on initial results.

If a vaccine can be proven to be safe and adopted widely, we could eventually see the end of the COVID-19 pandemic that has engulfed the world this year.

While there was good news at one end, the stock market decided it was bad news for “work from home” stocks.

Companies such as Zoom Video Communications (NASDAQ: ZM) saw its stock price fall from around US$500 to US$400 per share within a week.

Likewise, Top Glove (SGX: BVA), which benefited from increased glove demand due to the pandemic, witnessed its share price declining by almost 20% since last week.

Rotating in and out

As share prices of Zoom and Top Glove fell, another set of stocks rose.

Buoyed by optimism, shares of SATS (SGX: S58) rose by over 30% since last week on the expectation that air travel will return.

The contrast in fortunes between the likes of SATS and Zoom sent tongues wagging, with the financial media calling the phenomenon a “stock rotation”.

One problem, though.

Much of the commentary is about the change in share prices.

Little to nothing was said about the businesses.

As investors, we shouldn’t get too carried away by share price movements.

Reality check

There are significant hurdles to cross before we see the widespread adoption of a COVID-19 vaccine across the world.

Both Pfizer and Moderna have indicated that mass production, should their vaccines obtain approval, can only happen in 2021.

Even then, there will not be enough for the world’s population in the next 12 months.

Transportation of the vaccine will also present a challenge.

Pfizer has indicated that its vaccine will need to be maintained under temperatures below 70 degrees Celsius.

Despite the difficulties, I have little doubt that governments and businesses will find a way to overcome these challenges.

But the rollout of a vaccine will take time.

How long will the process take?

Well, your guess is as good as mine. The thing is, no one knows for sure.

But given the obstacles, it would be fair to say that we should NOT expect to see wide-scale changes within the next 12 months.

Return to better

Hoping for things to return to normal is not enough for some companies.

Instead, Micro-Mechanics’ (SGX: 5DD) theme is to “return to better”.

There are indications that some habits formed during the circuit breaker will remain.

For instance, online sales as a proportion of total retail in Singapore has risen from 5.8% in January this year to 11.2% for September.

Meanwhile, both United Overseas Bank Ltd (SGX: U11) and DBS Group Limited (SGX: D05) have announced plans to allow their staff to work from home for two days each week.

In short, life will go on as a vaccine is being created.

Businesses will need to adapt regardless of whether the pandemic is over 12 months or five years from now.

Get Smart: Beyond the pandemic

At The Smart Investor, we believe in investing for the long term.

This week’s events are a good reminder that our time horizon should extend beyond 12 months.

That means that we don’t buy stocks just because of the pandemic alone.

Instead, we have always focused our attention on companies that have done well before the pandemic, during, and will do well even after we have seen the back of the dreaded COVID-19 pandemic.

We remain focused on buying stocks that will either reward us with a dividend or show the potential to provide us with capital gains that compound over years — and not just the next 12 months.

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Disclosure: Chin Hui Leong owns shares of Top Glove, Micro-Mechanics, UOB, DBS Group, and Zoom.