Zig when everyone else zags. That’s often a way to succeed in investing. With the stock market near correction territory, many investors are at least considering shifting their money into assets that are considered to be relatively safe such as utility stocks.
But could a better option be to buy Modern (NASDAQ: MRNA) – a stock that most would probably view as high risk? That might seem to be a crazy idea. It’s worth noting, though, that while the major market indices were falling during the initial phase of Russia’s invasion of Ukraine, Moderna’s share price soared.
Sure, that big jump was due to Moderna’s better-than-expected fourth-quarter update. However, there were some important details in that update that should increase investors’ optimism about the company’s prospects.
Could Moderna be the perfect stock to buy in a market correction? Here are five reasons why the answer just might be “yes.”
1. More boosters
Chief Medical Officer Paul Burton stated in Moderna’s Q4 conference call, “We firmly believe that a vaccine booster dose will be required for the fall of 2022 to provide ongoing protection against this virus.” His use of the word “firmly” especially stood out to me. Moderna isn’t just hoping that boosters will be needed later this year; it fully expects they will be.
The company provided solid arguments for its view in the call. Antibody titers are waning after the initial six-month booster shot. Burton pointed to data that suggest protection will be needed against both the delta and omicron coronavirus variants.
There’s a simple connection here for Moderna. The more boosters that are needed, the better the outlook for the stock – regardless of what happens with the stock market.
2. Major stock buybacks
Large companies know that one of the best ways to increase their share price is to reduce the number of shares available through stock buybacks. Moderna announced last Thursday in its Q4 update that its board authorized another $ 3 billion in share repurchases.
This buyback program represents nearly 5% of the company’s market cap right now. Granted, there’s no guarantee that Moderna will spend the entire $ 3 billion this year. However, the company bought back $ 1 billion of shares by Jan. 31, 2022, under a stock repurchase program authorized in August 2021. I anticipate that a big chunk of the latest buyback plan will be executed by year-end.
3. Potential pipeline catalysts
In some ways, biotech stocks are ideally suited to swim against the stream in a declining market. Why? They frequently report results from clinical studies that, if positive, can excite investors. The good news for Moderna is that it has several potential pipeline catalysts on the way.
The company expects to file for US Emergency Use Authorization (EUA) of its COVID-19 vaccine in adolescents in the near future. It anticipates advancing an experimental messenger RNA (mRNA) flu vaccine into late-stage testing this year. A combination COVID-19 / flu vaccine should move into phase 1 testing in 2022 as well.
Looking beyond infectious diseases, Moderna also should report results from a phase 2 study of its personalized cancer vaccine in the fourth quarter of 2022.
4. A huge US wild card
I think that many investors are overlooking a huge wild card for Moderna. Thus far, the company has secured advanced purchase agreements for 2023 with several countries, including the United Kingdom and Canada. But there’s one country notably missing from the list: the US
Modern CEO Stéphane Bancel mentioned in the Q4 call that the last shipments under the current US contract will be made before this summer. The company does not have any supply agreements with the US government for the second half of 2022 or for 2023.
My take is that Moderna will sell plenty of doses of its COVID-19 vaccine in the US into next year and beyond. I do not know how many doses it will be. And I do not know if it will be the US government purchasing the doses or if Moderna will sell to private companies. But US sales for 2023 could be a wild card that gives investors a winning hand with this stock.
5. An already beaten-down price
Finally, there’s an obvious reason why Moderna could outperform the overall stock market: Its share price is already beaten down. The stock is nearly 70% below its peak set last summer.
To be sure, that does not mean that Moderna’s share price can not go even lower. However, I think we’re already seeing that many investors believe the stock is now oversold. If the market remains in correction, stocks that are already oversold could fare better than those that aren’t.
Close enough to perfect?
Even with these five arguments, I do not think that Moderna is the perfect stock to buy in a market correction. It’s still risky, in large part because we simply do not know what’s going to happen next with the COVID-19 market.
However, my view is that Moderna is without question a much better pick now than it’s been in quite a while. I suspect that it just might zig upwards if the market continues to zag downwards. For some investors, Moderna could be close enough to perfect to warrant a serious look.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.