Vaccines - What Are People Thinking?

[Viking]

Ok. The Pfizer news today was a bit of a shocker for me. Specifically, the efficacy rate of 90%.

 

Up to now i have not been spending great amount on time on vaccine’s other than knowing

1.) news is coming

2.) details could be all over the map in terms of efficacy, availability, volume etc.

 

So from an investment perspective i was happy to grow my equity exposure thinking there was a decent chance we would get some positive news on the vaccine front in the coming months.

 

Given the Pfizer news, i am wondering if i am underestimating what we might get announced in the coming weeks and the speed we could see the economy return to ‘normal’. Yes, the next couple of months will be ugly (virus cases, economy, earnings). But there may be a chance we get to a new normal in the economy by June or July of 2021. That is not very far away. Perhaps today was a little foreplay of what might be in store the next month or two for stocks in sectors ravaged by covid if we get more good news of the vaccine/treatment front.

 

And 90% efficacy is important. Does this mean more people are likely to get the vaccine (versus if it was 50% effective).

 

So at the same time covid is once again running rampant we might actually get very good news on the vaccine and treatment front. Bizarre.

 

So how are people thinking about the potential for vaccines and treatments in terms of stock selection and portfolio construction today? Or perhaps no change at all?

 

—————————————

Pfizer’s Early Data Shows Vaccine Is More Than 90% Effective

- https://www.nytimes.com/2020/11/09/health/covid-vaccine-pfizer.html

 

The data released by Pfizer Monday was delivered in a news release, not a peer-reviewed medical journal. It is not conclusive evidence that the vaccine is safe and effective, and the initial finding of more than 90 percent efficacy could change as the trial goes on.

 

“We need to see the actual data, and we’re going to need longer-term results,” said Jesse Goodman, a professor of medicine and infectious diseases at Georgetown University. Still, he said, “it’s a testament to hard work and science that we’re getting results that are so good and so fast.”

 

Other scientists were stunned by the data so far.

 

“This is really a spectacular number,” said Akiko Iwasaki, an immunologist at Yale University. “I wasn’t expecting it to be this high. I was preparing myself for something like 55 percent.”

—————

Dr. Paul Offit, a professor at the University of Pennsylvania and a member of the F.D.A.’s vaccine advisory panel, said the news that Pfizer’s trial was progressing quickly was a good sign for other trials.

 

“If there’s any silver lining in the fact that our country is currently on fire with this virus, it’s that these trials can reach a conclusion much quicker than otherwise,” he said.

 

 

[kab60]

Interesting topic Viking, I've been pondering the same things myself.

 

Basically I'm still very much an optimist.

 

A lot of the stuff which has really run-up during 2020 has been Companies where I'd say demand has been pulled forward, and perhaps they're now growing off a higher base, but structurally I'm not sure much have shifted in a lot of these online-only models. On the other hand, I think there are segments in retail where the landscape might have fundamentally changed in a way that'll benefit some of the best operations going forward, which might perhaps not be fully discounted in the shares just yet. I still think this a tremendous situation for stockpicking because so much has been left for dead, whereas other things have been bid up to nosebleed levels on what to me seems like pulled forward demand. At the same time I'm surprised by the strength in something like Airlines, where the EV in a lot of cases seems to be higher today than pre-covid due to debt and equity issuances, and where I'd say the hit to intrinsic value is very real, and where you have a combination of operating and financial leverage being a PITA for a long time. So I'm very much trying to pick my stuff and grab some of the things I like for the long term while quickly flipping some other positions fairly quickly just because the volatility has been so great.

 

I think what might change the narrative is if the Democrats get a majority in the Senate, because higher corporate taxes would obviously be a fundamental hit to equity value, but it seems like the odds of that happening are low, and considering the still difficult backdrop I don't think there's a lot of support for raising taxes. Then there's also a risk that the vaccines flunks in the scientific study, but that seems like a low probability event, and you also have other vaccines on the way. Either way I'd just take the blow and stay invested, because if covid19 has reinforced anything in my process, it is that trying to time the market is mostly futile.

[mattee2264]

 

Only 94 people in a study of almost 50,000 people actually contracted the virus and it was the split of cases between those 94 people that determined the 90% headline figure. Even with such a small effective sample size the difference is convincing and suggests the vaccine works but the element of chance could still mean the real efficacy may be a lot less than 90%. And of course encouraging to know there have been no safety concerns raised at this stage.

 

But there are a few issues:

 

  -Pfizer expect to supply only 50M doses by the end of the year. That is only enough for 25M people. So in practical terms only key workers and perhaps some of the most vulnerable will get it.

- Based on the study the vaccine takes a month from the first dose to confer immunity

- The study hasn't finished and they won't even begin seeking regulatory approvals for emergency use until the third week of November.

- Logistical issues to do with storage and transport probably mean it won't be until the middle of next year at the earliest that enough people have been vaccinated to put the virus to bed

- Having a viable vaccine candidate might make politicians more inclined to play it safe and lockdown the economy this winter

- It might also make people delay travel and return to work plans until they've had the vaccine

[Uccmal]

I find this whole thing fascinating, insofar as having my life upended in every possible way can be considered fascinating. 

 

I had a buy list for years of a few US and a couple of Canadian stocks that always seem overpriced to me. 

In March, early April I bought shares in HD, Costco, FB, Apple, Visa, Mcd, and Ko.  In Canada, new stocks were QSR, CN, and CTC.a . 

 

I expected FB and Apple to rise with the movement online.  I had no idea that HD, CN, and CTC, would recover so fast.  I thought Visa would come back quicker, but it is taking its time.  The whole home renovation, building boom took me by surprise.  A deeper dive into possible second order effects might have  uncovered this, but as is usually the case with a crisis there simply isn't time to think about this. 

 

On the dark side I bought puts on some of the Us names above and got skinned alive, but I have more than made back my losses on that. 

 

I dont think we can easily predict the effects of vaccine(s).  Some of the trends were already in motion before the pandemic will continue such as cashless payment.  I am not convinced that video meetings will be popular enough to sustain the stock prices of Zoom and its ilk, which we saw yesterday.  The big companies are going to eat their lunch anyway.  And there is a high level of Zoom fatigue. 

 

Another trend that will continue to gain traction are ESG stocks - not particularly related to the pandemic. 

 

Obviously, drug companies who have treatments and vaccines will do well but that is probably priced in. 

 

My take on travel is that it will take a couple of years, at least to come back.  And as mentioned above alot of these companies are now owned by the bondholders.  I wouldn't touch airlines ever.  They just lurch from crisis to crisis. 

 

Then, there is the uptake of a vaccine.  My feeling is that being vaccinated will become a passport to doing all sorts of things in society.  Private companies and their insurers will force it on people, where governments do not.  If you want to travel on our flight you have to be vaccinated; work at our company; enter our premises, etc. 

 

I am not really buying anything new, or even looking right now.  Alot of the "backbone" companies are at least fairly priced and I will hold the ones I have already.  Guessing which retailers, travel companies, or manufacturers will do well is difficult, and will likely take longer than expected to play out. 

 

On a side note, Vaccine or not, the UK, EU, and US, and probably quite few other countries are rapidly heading toward herd immunity of some sort.  I always wonder what the real positive numbers are.  If the US (for example) is really getting 300 k cases per day that gives it 100 M cases within a year.  The same would apply in many places.  At some point left unchecked numbers will come down on their own.  That assumes some level of persistent immunity.  Adding a vaccine into this scenario only speeds things up. 

 

 

[SharperDingaan]

There is a big difference between 'available' and 'deliverable'. There will also be MORE than one vaccine, competing for the same global resources, over the same period. Additionally, most nations are likely to take an economically driven 'us first' view.

 

Euphoria. There is a permanent way out of the nightmare, and the world should know the concrete details by year-end. Ability to plan comes back on the table, Trump's disruption is gone, and 2021 becomes a year of recovery. Strong stuff.

 

Reality. It will take the supply chain at least 4-5 months to make, distribute, and jab in quantity. If the most-at-risk are jabbed first, it will be at least mid-late summer 2021 before the masses start getting jabbed. Developed world airline travel/tourism becomes practical late fall/xmas 2021. All positive, but all about managing expectations.

 

The nearer term winner is oil/gas, and a change in sentiment.

Rising demand throughout 2021 as economies come back to strength. Supply constrained as the absence of 2020 drilling, and depletion, drags on ability to respond. Inventory gluts rapidly evaporating as excess demand sucks hard. Hugely beneficial for Alberta: strong US/CDN incentive to continue with NA pipeline construction that starts delivering in 2022. Green pressure to refine in Alberta (local + alaska production), and export finished versus raw product.

 

All good.

 

SD

 

 

 

 

 

 

 

[scorpioncapital]

" Only 94 people in a study of almost 50,000 people actually contracted the virus"

 

How do they determine this? Most countries are under severe quarantine. I suspect they don't infect the people on purpose.

[Cigarbutt]

" Only 94 people in a study of almost 50,000 people actually contracted the virus"

How do they determine this? Most countries are under severe quarantine. I suspect they don't infect the people on purpose.

i'm not sure what you're asking. The trial is a 'natural' experiment. An environment where community transmission continues at a high rate has the advantage to help to reach (pre-defined targets) statistical power more rapidly but the disadvantage to result in an eventual distribution of a less powerful product to an almost-reached-herd-immunity population.

[mattee2264]

 

That is my understanding. Part of the difficulty in developing the vaccine was that transmission rates died down significantly over the summer. It took a study size of around 50,000 half of which had received the vaccine to produce 94 COVID cases. My point was that if 9 out of 10 those people took the placebo that is pretty convincing evidence that the vaccine is effective but much weaker evidence that the true effectiveness is 90%.

[SharperDingaan]

Keep in mind that any given vaccine does not have to be 'perfect' -  'good enough' (effectiveness > 80-85%?) is all that is really required. The reality is that most will get jabbed with 2-3 different vaccines (singly, or in combination), and the cumulative 'recovered' count grows every day. The bias is a continually compressing time-line until herd immunization is achieved - the bitch is that we have no idea when that occurs, and cannot plan.

 

We know the direction and can be strategic, but as we don't know the timing we cannot be tactical.

Welcome to the everyday real world!

 

SD

 

[Spekulatius]

The vaccine on the horizon does not change the fact that the Xmas shopping season is going to be shot for B&M only retailers and next years travel season still is going to be impaired because many destinations will require vaccination and that just won’t be available for all.

 

In addition, vacations need to be planned ahead and that’s just tough to do.

 

I think we are going to look at close to normal in fall 2021.

[Viking]

The vaccine on the horizon does not change the fact that the Xmas shopping season is going to be shot for B&M only retailers and next years travel season still is going to be impaired because many destinations will require vaccination and that just won’t be available for all.

 

In addition, vacations need to be planned ahead and that’s just tough to do.

 

I think we are going to look at close to normal in fall 2021.

 

Yes, the next couple of months could be ugly. The timing of the new normal will depend greatly on how many successful vaccines we get. We should know much more in the next 4-6 weeks. Seasonality should also be a big help one we hit April / May (in northern hemisphere). I am hoping September of 2021 (back to school - with three kids in university :-). In person classes? Would be great!

[samwise]

 

So how are people thinking about the potential for vaccines and treatments in terms of stock selection and portfolio construction today? Or perhaps no change at all?

 

I have been using a simple valuation framework since early in the pandemic. (Thanks to people on the Coronavirus thread for helping understand what was going on and also showing how people were reacting to it. Group sourced research!)

 

Value = normal environment value (1) +  cash burn over pandemic (2) + longer term effects (3)

 

(1) whatever you would do normally, perhaps discounted 2 years, but I never bothered with that.

(2) cash burn = burn rate per quarter * quarters the pandemic lasts

  In the beginning I had to guess the burn rate, but as companies reported a couple of quarters it became less of a guess.

  In the beginning I also had to guess the length of the pandemic, and I was probably too optimistic. This is the variable that the vaccine news changes. Perhaps we can say with a bit more certainty that the pandemic ends in a year, perhaps 6 months (in western countries, will take years to make 18 billion doses for the world).

  One way to make the guessing easier was to only buy when the cash burn was low or zero. A high burn rate meant you were buying an option that would expire, and you had to be pretty certain that the burn would not last long enough to impair the equity holders. A low/zero burn rate meant it was an option without expiry, although covenants could be an issue.

 

Now with a bit more certainty around length of pandemic, valuation of (2) can be a little more certain, and riskier positions can be taken with higher cash burn if you see enough margin of safety. E.g. entertainment probably comes back quickly because its fun and people want it. So you can value an entertainment company with 3 more Qs of cash burn, and add that to debt in the EV.

 

(3) Long term effects: I have no idea if business class travel, office and malls demand has permanently altered.  The vaccine news doesn't help with this judgement. This is where there is still opportunity. If you have a strong view that oil demand recovers, or offices go back to normal and WFH fades, you can find undervalued stocks. Or you think the online shift has gotten a permanent boost..

[mattee2264]

 

samewise the way I am thinking about it is:

1) Given the burn rate does the company have the financial strength to survive?

2) What will normalized earnings be post-COVID and what multiple will that deserve?

 

Re 1) I agree it is probably a lot easier to handicap.

Re 2) there probably needs to be a significant discount. For example there is likely to be less business travel which is bad for hotels and airlines. And there might be a rent reset in real estate if it turns out we have too much office space for the demands of a more flexible workforce. Interest expenses might also be a lot higher if they took on a lot of debt to survive and it might take time to delever. And multiples might be lower because of a lingering stigma attached to these industries.

 

 

[mattee2264]

 

Does anyone have any thoughts on how markets will react to more lockdowns given we have a vaccine now? I read that NYC has started imposing 10pm closing times at bars and restaurants. We went through the same charade in London last month and it didn't save us from a lockdown. Ultimately politicians seem to be like sheep so I imagine in US they will follow the same playbook of imposing social restrictions and when cases keep rising impose lockdowns. There are some signs today that investors are rotating back towards tech. But after the election and the vaccine news the escalating Covid cases hasn't really been front page news. And perhaps the existence of a vaccine puts more pressure on politicians to impose lockdowns.

[Gregmal]

 

Does anyone have any thoughts on how markets will react to more lockdowns given we have a vaccine now? I read that NYC has started imposing 10pm closing times at bars and restaurants. We went through the same charade in London last month and it didn't save us from a lockdown. Ultimately politicians seem to be like sheep so I imagine in US they will follow the same playbook of imposing social restrictions and when cases keep rising impose lockdowns. There are some signs today that investors are rotating back towards tech. But after the election and the vaccine news the escalating Covid cases hasn't really been front page news. And perhaps the existence of a vaccine puts more pressure on politicians to impose lockdowns.

 

I dont know if I would suggest trying to predict what markets would do with another lockdown, but rather plan for how you will react in the event of various scenarios. For instance if we get another lockdown, and the market collapses, its a no brainer the buy the most covid impacted names, provided the balance sheets are in good shape and assets are solid. The next lockdown, if it happens, will be the last lockdown. If I was long WFH tech trading at 100x and it soared on lockdown news...I'd probably book some profits. I think many office and retail landlords are now derisked with the vaccine news. The next lockdown may effect tenants, but a landlord with a robust balance sheet and easy access to cheap capital will be fine, and then its pretty simple...you'll find replacement tenants as we recover. I would be concerned though about owning something like Macys...who's year hinges big time on Q4. Of course, theres caveats to everything and these are just examples, but Ive found it much easier to plan(and/or hedge) for either scenario rather than try to outright predict one vs the other, at least in cases like this.

[BG2008]

 

Does anyone have any thoughts on how markets will react to more lockdowns given we have a vaccine now? I read that NYC has started imposing 10pm closing times at bars and restaurants. We went through the same charade in London last month and it didn't save us from a lockdown. Ultimately politicians seem to be like sheep so I imagine in US they will follow the same playbook of imposing social restrictions and when cases keep rising impose lockdowns. There are some signs today that investors are rotating back towards tech. But after the election and the vaccine news the escalating Covid cases hasn't really been front page news. And perhaps the existence of a vaccine puts more pressure on politicians to impose lockdowns.

 

I dont know if I would suggest trying to predict what markets would do with another lockdown, but rather plan for how you will react in the event of various scenarios. For instance if we get another lockdown, and the market collapses, its a no brainer the buy the most covid impacted names, provided the balance sheets are in good shape and assets are solid. The next lockdown, if it happens, will be the last lockdown. If I was long WFH tech trading at 100x and it soared on lockdown news...I'd probably book some profits. I think many office and retail landlords are now derisked with the vaccine news. The next lockdown may effect tenants, but a landlord with a robust balance sheet and easy access to cheap capital will be fine, and then its pretty simple...you'll find replacement tenants as we recover. I would be concerned though about owning something like Macys...who's year hinges big time on Q4. Of course, theres caveats to everything and these are just examples, but Ive found it much easier to plan(and/or hedge) for either scenario rather than try to outright predict one vs the other, at least in cases like this.

 

Just buy some IWM puts bruh and lock it away

[Gregmal]

LOL no high yield index swaps for us little guys, eh? I do like the kamikaze puts.

 

 

[mattee2264]

 

Good advice Gregmal. I'd also be a lot comfortable buying the recovery plays when everyone else is fleeing back to the safety of Big Tech on new lockdown fears. Also not sure it is priced in because I don't think in USA people realize how quickly social restrictions can escalate to full lockdowns. So there could be a similar scenario to the summer when the re-opening fever rotation quickly reversed once Europe started experiencing a second wave and the realization sunk in that there was a long way to go. Of course we are a lot closer now and agree with you that this will be the last lockdown (although it could well take the form of rolling lockdowns) but I don't think it is fully appreciated that the vaccine won't make a massive difference until next year and the next few months could be very difficult.

 

[Gregmal]

Its reasonable to expect some lockdowns. But it will be regional. Its unconstitutional for a President to shut down a state. The FL, GA, TX, AZs likely are safe. Id be more careful on the coasts, but outside of trading around a bit with some of these, I just dont care to try to trade pennies hoping to avoid temporary drawdowns at the risk of missing generational opportunities. If you dont care where it trades over the next 3-6 months, these are some of the easiest investments we've seen since the financials post GFC.

[Spekulatius]

Its reasonable to expect some lockdowns. But it will be regional. Its unconstitutional for a President to shut down a state. The FL, GA, TX, AZs likely are safe. Id be more careful on the coasts, but outside of trading around a bit with some of these, I just dont care to try to trade pennies hoping to avoid temporary drawdowns at the risk of missing generational opportunities. If you dont care where it trades over the next 3-6 months, these are some of the easiest investments we've seen since the financials post GFC.

 

Red States may not shut down entirely, but their cities may. El Paso was shut down, because hospitals were at close to 100% of capacity. Except for a few die hard states like the Dakotas, most will do the same if hospitals are out of capacity due to COVID-19.

 

I do agree that you are correct that the president will not shut down the country - that never happened anyways. It will be up to the states to make the decisions, but I think this will be driven by hospital utilization more than anything.

[mattee2264]

 

Moderna initial results are going to be released by the end of the month. As their vaccine is pretty similar to Pfizer's you'd expect similarly promising results. That would mean another 20M doses available by the year end and up to 1B doses by the end of 2021. If one vaccine got the markets excited imagine two!

[Longnose]

 

Moderna initial results are going to be released by the end of the month. As their vaccine is pretty similar to Pfizer's you'd expect similarly promising results. That would mean another 20M doses available by the year end and up to 1B doses by the end of 2021. If one vaccine got the markets excited imagine two!

 

I have a few friends that are reps for some of these pharma companies. They are quite optimistic that they will have wide distribution of an effective vaccine by summer 2021.

[Gregmal]

Yup. Being conservative is fine and dandy. But there's a fine line. Sometimes you have to take risk and when the info starts flowing in the direction of your thesis, like a baserunner taking a lead, you take another step, then another, and at the sound of the crack of the bat, you're off and running. Too many of the conservative minded investors operator from a positive of fear, and they're basically wrong for 95% of the time, costing themselves opportunities. The only times they are really right, are very short term...maybe 2008-early 2009(12-18 months)...March 2020(for a literal 3 week period)....they still miss the opportunities or when weighted out, ultimately still fail to compensate for the years of missed opportunities. Of course there are exceptions. Like the guy in Omaha, although he too has at times fallen victim to the above. But for the average investor, it pays to be an educated risk taker. Your window of uncertainty regarding covid is winding down. When its gone and we have certainty the majority of the opportunity will be gone. Of course, with this said, I am referring to specific names. When I look outside those names/sectors....value is pretty remarkably hard to see in the remainder of the market.

[mattee2264]

Longnose any indication of how the more conventional vaccines are doing? Moderna vaccine results are probably expected to be similarly good to Pfizer's. But an effective conventional vaccine would be a great alternative and might accelerate the timing of a mass roll-out.

 

Gregmal. Appreciate your point and agree that there is a narrow window left to buy recovery plays. I feel the way to time it is to wait until the US follows Europe into lockdown (which is already starting) which will result in a pullback in most recovery plays and then buy hand over fist. At least then one will be buying when most people are selling. But lockdowns work so the curve will quickly flatten and a combination of re-opening and more positive vaccine news and probably a fat stimulus to get the economy back on its feet after winter lockdowns should give a recovery rally legs and it could be explosive. Very difficult to time so probably going to drip feed money into recovery plays on the way down. Some real estate but also financials and energy.

 

 

[Gregmal]

Yea, my experience has taught me that while you can save some ammo for "timing", your better approach is simply to take a measured approach to purchasing in small increments over the window of time in which you expect things to take course. You can weight purchases within that window and also circle certain valuation levels where greater enthusiasm is warranted. But Ive rarely had luck trying to nail the exact turning point. In your head, pull up a theoretical 10 year chart and just try to make sure your purchases look good on that lol, if that makes sense. You'll drive yourself nuts worrying about the 3/6/12 month.