How to Profit from the Swine Flu Panic
By Quint Tatro Aug 19, 2009 2:55 pm
Certain stocks will jump -- even if only marginally connected to the pandemic.
What started out as an article investigating Swine Flu-related stocks ended up a mixed bag of pharma stocks that were worthy of a second look as they continue to shape good patterns. I have also thrown in a couple of highly speculative (and I do mean speculative) charts that are closely related to the H1N1 issue at hand. Today’s review isn't so much a look at stocks from which to make money when Swine Flu is back, front and center in the US, but more a look at some possible trades that could set up in the next few weeks to months. Make your list, and keep your powder dry.Mylan Labs (MYL)
Mylan popped on my radar when I tried to connect them as an American maker and supplier of the Swiss-based Roche’s flu remedy Tamiflu. Mylan is one of the biggest generic-drug makers out there, and has a solid pipeline of upcoming products. Unable to verify that they actually have any current deals in the works with Roche, I nonetheless liked what I saw in their charts.
Several weeks back, Mylan had an unsubstantiated rumor at their manufacturing plant in West Virginia of lax quality control. The company brought in the FDA, which cleared them of any issues. As you can see on the weekly chart below, this rumor caused Mylan to perfectly kiss their 50 MA, and bounce right back.
Like many other strong names, Mylan bottomed in late 2008 and not March 2009, and enjoyed a full double and change from those lows. Two horizontal trend lines mark the area where Mylan is most likely to see some current resistance and consolidation. A bit of basing in here would be welcomed, and once Mylan takes out the upper trend line, a trader could have a great place for a stop (lower trend line) as well as room to run up to $20.
Teva Pharmaceuticals (TEVA)
Teva is one of those rare stocks that would have richly rewarded a buy-and-hold investor over the last decade. Pull up a monthly chart for yourself and look at the slow assault on the heavens that it has pulled off. Granted, hindsight is the panacea of the wounded, and the main reason investors are still licking their wounds from the 2008 slaughter. But a chart like Teva always gets a second look, if only for the mere fact that it's a godfather that has actually delivered.
In the last month, Teva has gone to all-time highs -- a point when not a single short seller is in the money. This golden moment when a stock sets an all-time high allows traders to not fight overhead resistance, and is a perfect place to go long. That area is around $50 for Teva, so I'd like to see it come in a bit before I'd go long. Digesting the great run it's had off of its October 2008 lows would allow Teva to exhale and weed out the impatient traders, and possibly suck in some shorts who see this run as unsustainable. An astute trader knows to never fight the trend, and this chart clearly points up.
No positions in stocks mentioned.
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Reply
2009-08-19 17:48:54
Poor Taste
While it may be possible to profit from the looming pandemic, the glee which you take at the prospect is in very poor taste. Many will die in the months to come.
2009-08-20 08:13:10
What glee?
I don't see the glee in the article that Bob U refers to. Seems rather to be a well-reasoned approach to investing around an idea.
2009-08-20 11:31:45
Glee
Hmmm, if anyone interpreted glee, that surely was not my intention. The last thing I want to do is rejoice over a deadly virus. I apologize if the piece was received in any ill-taste manner.
2009-08-20 14:13:37
Thanks
Thanks Quint, that's what I was hoping you would say. Investment decisions don't cause a pandemic of course, nor will a decision to buy or not buy particular stocks affect the outcome of the pandemic. Some will make money along the way and that's OK so long as the underlying event is not viewed as anything other than what it is, a tragedy for all concerned.
2009-08-20 14:29:00
Careful
Thanks for the suggestions. My question is what happens to these stocks when people turn off their news coverage and actually do some research into the swH1N1? The statistics don't support the amount of fear that this flu generates. At this point it really isn't any more deadly than the "seasonal flu". What I am saying is that some of these stocks could have a long way down if the "swine flu" doesn't turn out to live up to the hype.
2009-08-20 16:36:57
Careful
Brandan, I understand why you come to the conclusions that you have based on the media coverage to date but if anything the background scenario is being downplayed. Seasonal flu kills less than 1,000 people per year on average per the CDC's actual records, and almost all of those people are elderly and not in the best of conditions to start with. The 36,000 # that is endlessly repeated has not been sourced to any real data. It is inferred that 36,000 deaths each year come about from the flu or complications deriving from the flu (pneumonia for example). That 36,000 makes for an apples to oranges comparison to date with H1N1 because at present we are only counting actual documented H1N1 deaths. The current comparison needs to be made against the less than 1,000 annual seasonal flu death count, not the 36,000 Most of these deaths occur during the winter. We are nearing the 500 deaths mark in the US presently during the summer when seasonal flu is not typically a problem for even the elderly. Most of the H1N1 deaths are younger people, some with underlying conditions and some who were the picture of health. The media repeats endlessly that there are 1 or 2 million H1N1 cases to date in the US which then allows the death rate to be far less than we see with seasonal flu (especially when you use the 36,000 count). The problem is that there is no basis for those 1 to 2 million cases. There has not been any testing or data collected. The reality using real numbers of deaths as measured against known cases of H1N1 are comparable to what happened in 1918. The mortuary industry in NYC has just been advised to prepare for a 2.1% death rate this coming flu season as most likely with a 3.3% death rate as the worst case scenario. That's a 1918 level disaster waiting to happen.
One final comment is that I can understand why people don't see this as much of a problem just yet because very few people have gotten H1N1 to date and in a country our size very few have died. Flu season won't even start for a couple more months. The fact that it has continued to circulate at all through the summer is remarkable. We're still only in the opening credits of this show.
All that said, anyone who invests on the basis of the pandemic needs to aware of the risks and timing issues.
One final comment is that I can understand why people don't see this as much of a problem just yet because very few people have gotten H1N1 to date and in a country our size very few have died. Flu season won't even start for a couple more months. The fact that it has continued to circulate at all through the summer is remarkable. We're still only in the opening credits of this show.
All that said, anyone who invests on the basis of the pandemic needs to aware of the risks and timing issues.
2009-08-24 16:34:05
Careful
They probably get killed. However that is typically the way it works in this game that is the market filled with traders shooting traders.
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