You don’t have to dump all your holdings, to be sure, but having soared from fiscal perdition to its lofty standing now, actualizing the paper gains of NVAX stock just makes sense.
As you know, a central tenet of playing the investment markets is risk management. Further, this concept always fluctuates.
In other words, NVAX stock just before the novel coronavirus hit the U.S. (and other countries) features a different risk profile than the equity unit in its present backdrop.
At minimum, the law of large numbers makes it far less likely that you’ll see the astounding gains that Novavax shares printed throughout last year. However, that same law also makes it likelier that you can suffer severe losses should the fundamentals work against the company.
As I mentioned earlier, the fundamentals, in this case, come largely from Merck (NYSE:MRK). Recently, the pharmaceutical giant enjoyed an uptick in sentiment due to positive results from its Covid-19 oral antiviral drug. Further, the treatment could be very effective against variants of the SARS-CoV-2 virus.
On paper, the circumstance didn’t look great for Novavax and the market agreed. NVAX stock took a pummeling on the reveal and investors generally don’t seem eager to buy the dips. Still, it’s possible that NVAX bears could be overstating their case.
For one thing, Merck’s Covid therapeutic has yet to clear hurdles for mass-market availability. Positive results don’t necessarily mean Covid patients now will get access to the drug.
Second, research into therapeutics will not stop international governments from encouraging vaccination; an ounce of prevention and all that jazz.
Still, I would caution against a heavy contrarian bet in NVAX stock because the game has changed.
NVAX Stock Is Looking at a Saturated Market
In assessing the recent fallout from NVAX stock, the headlines suggest that the Merck drug spooked investors. They may very well be correct. At the same time, it’s also possible that Novavax was looking at a correction irrespective of its larger rival sooner or later.
While Novavax certainly offers other revenue-generating channels, the current narrative focuses on the Covid-19 pandemic.
Obviously, then, fear of infection is the cynical catalyst required for NVAX stock to continue performing well. But now, this fear has likely subsided, meaning that Novavax must compete in a saturated market.
Let’s put this into other terms: if there are unvaccinated people today where vaccines are readily available, they’re probably not going to get the jab.
Whether for better or for worse, millions of Americans don’t trust their government. You don’t even have to delve into the divisive politics to discover this point. Just consider these facts:
I bring up the above statistics to point out that believing in outlandish conspiracy theories about Covid vaccines is hardly a stretch if at least a conspicuous non-zero portion of the population question extensive scientific literature regarding the earth’s shape.
And it’s not just Americans that don’t trust their governments. Many developed nations also have surprisingly low levels of trust. Therefore, Novavax and others will have a tough time convincing the holdouts to take their “poison.”
Read the Chart
One other argument that pops up in defense of NVAX stock is that against common valuation metrics, shares are cheap. Some proponents might even argue that it’s ridiculously cheap. While that might be the case, you should also realize that investment markets are emotional.
Currently, the emotions appear to be running dry for NVAX stock. Unlike many recent corrects, shares are underneath their 50-day and 200-day moving averages. True, NVAX did drop below its 200 DMA in May of this year. However, it quickly began charging higher to eventually break above the long-term trendline.
Can the same be said about NVAX stock currently? That’s where I’m questioning the narrative. Following its sharp spike down move, shares have been moving laterally, thereby making negative progress against the 200 DMA.
Personally, I’ve seen enough. It’s time to take some profits off the table, leaving the rest to play as “house money.” It’s clear sentiment has shifted pessimistically and NVAX threatens more pain before the situation improves.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.