An ‘Off-the-Grid’ COVID Play
By Fri, Dec 11, 2020
Are you going to get the COVID-19 vaccine when it is available? Many are wary of getting a jab of something that was fast-tracked to approval status as a result of the President’s Operation Warp Speed initiative. Rightly so. Typically, new vaccines receive three to four years of experimentation and testing, not three to four months. Still, many have expressed relief that there is now the possibility of returning to some degree of post-pandemic normalcy next year.
For our purposes here today, this is the operative question: can we, as investors, profit from this rollout? Even if the vaccine is not made mandatory, there will be millions across the globe, maybe even billions — especially those medical and health care personnel fighting the pandemic on the front lines – who will be more than happy to line up for the shot. Can we make some money off that massive demand?
Absolutely! There are two ways of profiting from any new drug: you can buy shares of the drugmaker, or you can buy shares of the companies that help to distribute the drug. There are two drugmakers involved in the COVID-19 vaccine rollout – Pfizer (PFE) and Moderna (MRNA)– and both have done exceedingly well in recent months. The former, a mega-blue chip, is up 33% over the past six months, while the latter, which was languishing with a lackluster pipeline for several years, is up over 700% in the same period. Both remain strong holds for investors fortunate enough to have bought shares before the major news hit.
I prefer a more “off the grid” approach. How about all those needles? Where will they come from and who will be making them? I did some digging around in manufacturers of high-tech syringes and discovered an excellent play: Retractable Technologies (RVP). While Becton, Dickinson and Company (NYSE: BDX) is the undisputed king of the jab-provider group – at a market cap of $68 billion, BDX trades at over 200 times the size of wee little RVP – Retractable Tech has several advantages that make it the better play in the space:
- First, from a valuation perspective, BDX is superior. Shares trade at an earnings multiple of only 20.5, and the company has little in the way of debt, whereas BDX trades at a bloated 88 multiple with debt in the redline.
- Second, Retractable is growing, Becton Dickinson is not. RVP grew earnings 220% this year (I’ll tell you why in a minute) while BDX saw its bottom line shrink by 28%, year over year. It’s the same with top-line growth: RVP printed a 134% quarter-on-quarter ramp while BDX managed only a feeble 4.4% run higher.
- Third, Retractable has excellent management. Its return on equity (ROE) stands at a whopping 47% (ROE is a function of management efficiency of assets over time) whereas Becton Dickinson’s management team only managed a 3.4% growth.
One main reason Retractable grew so much this year on both the top and bottom lines is that the Little Elm, Texas, company was awarded $137 million in government contracts back in May and July this year for its hypodermic safety needles. These two orders more than doubled the company’s 2019 revenues of $41.8 million. While the company issued a statement warning about possible supply chain issues since most of the syringe parts come from China, it also said it was confident it could fulfill the order. It also referenced a $1.4 million forgivable loan from the SBA’s Paycheck Protection Program that would be used to ramp up production facilities.
Clearly these two orders, which were issued by the White House’s Covid task force, were in response to the pandemic. “We face an urgent need to administer large quantities of vaccine once produced,” wrote Peter Navarro in a memo dated to late February. A member of the President’s Covid task force, Navarro is in charge of manufacturing issues. “An estimated 850 million needles and syringes are required to deliver the vaccine. Our current inventory is limited and…it would take up to two years to produce this amount of specialized safety needles.”
The government’s stockpile of needles only contains about 15 million units. To vaccinate the 320 million eligible Americans, it would take over 850 million syringes to meet the combined demand for the two Covid jabs along with what is already required for flu shots, insulin, and other vaccinations. Retractable Technologies to the rescue!
Retractable Technologies’ patented flagship product, the retractable VanishPoint needle, is designed to prevent needle stick injuries and would add an extra layer of safety to the COVID-19 vaccine for a public already nervous about taking such a new drug.
Action to Take: I like shares of RVP up to a price of $14.00 with a view to selling the stock above $20.
About the Author
Dr. Thomas Carr (aka “Dr. Stoxx”) is the founder, CEO and Chief Market Strategist for Befriend the Trend Trading, LLC, which oversees the "Dr. Stoxx" brand of stock-picking newsletters (DrStoxx.com) and trader training resources. Dr. Carr has been active in the markets since 1996. Along the way he authored four bestselling books on the stock market that have been translated into Chinese, Korean, and Japanese.
