Pandemic Profits In Healthcare Stocks

Did you get Pfizer or Moderna?

That question came up in countless everyday conversations during the past two years as America got vaxxed and de-masked in an attempt to return to a normal life post-lockdown.

So, let’s look at the two major public companies at the forefront of Operation Warp Speed, the effort to deliver mRNA vaccines to the public as soon as possible.

Moderna

Although founded in 2010, Moderna (MRNA) wasn’t a household name until 2020. Shares in the biotech firm began trading on the NASDAQ exchange in December 2018, closing the first day at $18.60, 19% below the $23 initial public offering (IPO) price.

Moderna’s stockholders suffered through a miserable year in 2019 as the shares declined to a low of $11.54 in August and spent very few days above the IPO level.

The stock struggled for good reason—the firm was burning money on research and development expenses. In most quarters, it brought in less than $20 million in sales and spent more than $100 million.

Everything changed in 2020 as the race to develop COVID-19 vaccines became paramount, and Moderna’s years of mRNA research would finally pay off.

In Q1 2020, the worst revenue quarter on record for Moderna, the company posted revenue of $8.4 million and R&D expenditures of $115 million. A year later, as vaccine distribution began to roll out, the Q1 revenue figure reached $1.7 billion with an R&D expense of $400 million. It was the company’s first quarter of positive earnings per share (EPS). (See Earnings explosion, below).

Before publishing Q1 results on May 6, 2021, Moderna’s stock had already reached an all-time high over $189 in both February and May of that year. Despite dropping to $160.50 post earnings, IPO investors were still sitting on a near 600% return.

The euphoria continued as Moderna shares seemingly gained meme-stock status and capped out at just over $450. But the meteoric rally was met with swift craters in price, even before the general market pullback of 2022.

With Moderna trading in a range of $170 to $210 so far this year, it seems unlikely the stock will return to $450 anytime soon. That said, analysts remain optimistic about Moderna, with an aggregate price target of over $230.

Moderna was scheduled to report another round of earnings on Feb. 23.

Pfizer

Pfizer (PFE) products have been an integral part of global medicine for decades. By 1936, the company had become a world leader in vitamin production, and in 1944 it began mass-producing penicillin.

For 30 years, the stock paid steady dividends while providing incremental price increases for investors who rode out the dot-com crash.

Revenue figures tell a similar story, with the stock earning $10 billion to $14 billion a quarter, every quarter, from 2013 through 2019. While 2019 saw a pullback as COVID gripped the world, Q3 2021 to Q4 2022 earnings consistently rose above $20 billion per quarter as vaccines and then Paxlovid padded Pfizer’s bottom line and EPS.

As with most stocks, Pfizer got caught up in the systemic selloff of 2020. Its price tumbled from over $38 per share to below $27 between January and March. In 2021, it achieved a peak of $61.71 before pullbacks throughout 2022.

The stock sat between $45 and $50 to start the year. Wall Street analysts have set a current average price target of $55, providing hope of potential upside for investors buying at current prices.

Past and future

The pandemic made Moderna and possibly even saved it, pulling the struggling biotech into the stratosphere with a wave of profitability. While the company will lead mRNA innovation, it will continue diversifying its product line.

That seems a natural progression for a biotech like Moderna, whose future profits will not be decided entirely by a single U.S. Food and Drug Administration approval.

Likewise, Pfizer will continue to innovate and add to its product suite.

So, should investors opt for Moderna or Pfizer as a healthcare play in their portfolio? Why not both? While Moderna was a long shot that paid off for early investors, it will likely morph into something more like Pfizer in the coming years.

Investors looking to take a broader stake in healthcare might also check out IYH, the iShares U.S. Healthcare exchange-traded fund. It provides diversification across over 100 healthcare firms. But bear in mind that exposure to Moderna accounts for less than 2% of the ETF’s total assets, and Pfizer is just 5%.