Zak Mir on stocks to benefit from Ebola: Chimerix and Lakeland Industries
There are already certain faux pas events that we know as far as the handling of Ebola is concerned. It would have been better to have treated those who had caught the disease in Africa in situ, and to have imposed an air travel ban from the original regions where the disease originated in the post December 2013 period until it was controlled.
The actions of the World Health Organisation (WHO) have been so poor as to cause us to question what the point of this hubris / vanity project is, in that it has been just poor as the “United Nations” in its feeble efforts to cool geopolitical conflict.
Having left the stable door open to Ebola, it will be interesting to see how the “hope for the best” strategy from WHO and complacent politicians will cope with a few dozen cases in major European / U.S cities. I suspect there will be chaos in terms of having to isolate those close to victims for up to three weeks, something which the stock market looks like it is now reacting too.
Ebola: nasty
The FTSE 100 has moved from being modestly rated as little as a month ago (with a yield of 3.5% and p/e of 13) to looking like it is in bargain basement territory IF the Ebola episode proves to be a storm in a teacup.
As things stand there is a 50% mortality rate out of those who are diagnosed. What is not known for sure is how many of us may not suffer if exposed to it. It could be argued by cynics that the fight against it has been so laughable that if Ebola was as dangerous as it appears, many more would already have succumbed.
From an investment perspective the easiest way forward has of course been to go short of travel related stocks. We have seen chunky losses over the past couple of weeks for the likes of EasyJet (EZJ) / International Consolidated Airlines (IAG) and Thomas Cook (TCG) / Tui Travel (TT.). But to my mind there is more interest from a speculative perspective to look across the pond and the biotech plays on this fearful disease.
Clearly, the ideal scenario is for a prompt discovery of a magic bullet cure. Nasdaq listed Chimerix’s (CMRX) brincidofovir drug could have been top of the heap until the death of the first U.S. patient last week, despite having had the treatment. The competition in the form of Biocryst (BCRX), Tekmira (TKMR), Inovio (INVO) and NewLink Genetics (NLNK) represent something of a “horror” portfolio, but a group well worth following.
The most notable aspect of these companies is that their shares have understandably been in a constructive phase in recent months. This implies the market feels that their value may be appreciated, or that simply, one of them will crack Ebola.
However, the smartest play is an idea that I remembered from both the Gold Rush of the 19th century in the U.S. and the Dotcom Bubble at the end of the 1990s. Those who do best are those who make the picks and shovels of the boom, in other words, provide the infrastructure.
Lakeland Industries (LAKE) is the company (along with giants Dupont (DD), Honeywell (HON) and Kimberly-Clark) which makes the hazmat protective suits and could be a winner in terms of demand from the medical area. Who knows, a variation on the hazmat could be the Autumn / Winter 2014 – 2015 fashion look.
What I thought noticeable on the daily chart of Lakeland is that there was a trend changing unfilled gap to the upside in September last year. This was three months before Ebola Patient Zero in December. Of course, there is nothing like a good conspiracy theory to accompany a possible world pandemic.
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