Editor’s note: This article was first published in October 2014, during the West African Ebola outbreak. All share prices, percentage moves, price targets and market capitalisations are from the week of 19 October 2014. Several companies have changed since; for example, Tekmira became Arbutus Biopharma in 2015.
If there were a serious Ebola epidemic, which stocks would be hit hardest, and which would benefit most?
Several leading scientists, including Peter Piot, the discoverer of the Ebola virus, are not very optimistic about the ability to contain the current outbreak. Let’s hope that in the end the right thing is done, and that this whole health scare turns out to be just a fright and a lesson for not having done things properly 10 years ago.
But if we imagine a scenario in which the outbreak gets out of control, investors will find both serious setbacks and excellent opportunities in the markets. We won’t say much about the stocks that would suffer in an “Ebola epidemic”, because in practice almost the whole market would fall, starting, as we have already seen, with airlines, hotels and everything related to tourism.
When the time came, gold would once again become a strongly rising safe haven. But there are also several drug companies, some of them virtually unknown until now, that have been thrust into the limelight by this virus.
1. iBio (NYSE MKT: IBIO)
We’ll start with this small drug company, which is not yet profitable and whose shares have risen 417% in the last 30 days. The most striking jump came on Friday, when it closed the session up 69% after announcing that it will work with (or has offered to work with) the US government, providing its antibody production technology to help Ebola patients fight the virus.
Shares in this little-known company have gone from $0.54 to $3.21.
2. Tekmira Pharmaceuticals (NASDAQ: TKMR)
This drug company was one of investors’ favourites, to the point that after the new Ebola outbreak appeared they pushed it back up close to its all-time high of around $30. But although the rest of the “Ebola companies” have kept rising in recent days as new infections were announced around the world, this one has fallen more than 20% in the last two weeks.
Of course, that could be down purely to technical analysis, as it has formed a rather ugly double top on its chart. Tekmira is one of the companies furthest ahead in treating Ebola, although for now its treatment is still experimental.
3. Chimerix Inc. (NASDAQ: CMRX)
This biopharmaceutical company is still on an upward trend, having risen 65% in the last three months, with an analysts’ consensus price target (set before Ebola) of $37 a share. Even so, it already fell almost 4% on Friday.
4. Sarepta Therapeutics (NASDAQ: SRPT)
This company’s business centres on Ebola-type diseases, so Sarepta, which has been hammered with a 48% drop over the past year, could be, according to various analysts, one of the biggest winners if the virus breaks out. The company develops therapies for rare and infectious diseases, and in the case of Ebola it has several drugs for the haemorrhagic fever the virus causes.
Its share price has barely moved since the Ebola cases, probably because the company’s shares are actually expensive, considering that it has not reported any profits.
5. Allied Healthcare Products (NASDAQ: AHPI)
The penny-stock pharma: low trading volume, a market capitalisation of only 21 million and hardly any business. After rising more than 35% in the last month, it has already lost 17% in the last five days.
Although it is not directly related to Ebola treatments, investors would keep it in mind because part of its business is respiratory therapy equipment and products, and it supplies some hospitals. Its shares trade at $2.73 and it currently has a price target of more than $4.00.
Warning
In my view, these companies have dreadful fundamentals, and the current rise in their share prices and trading is due solely to the Ebola factor. The gains some of these drug companies have made would only make some sense if Ebola played out in the worst scenario we can imagine. So rather than investing in them, I would recommend them for speculating, as they will see plenty of movement both upwards and, let’s hope, downwards.
See also: Show me the money: lessons from the Enron and Gowex cases that every investor should learn
Featured image: NIAID, CC BY 2.0, via Wikimedia Commons.
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