The stock market has been subject to worrisome volatility over the past 10 months. After a sharp rebound in the wake of a deep correction last March, the market swooned again in September but then regained its stride after U.S. Presidential elections in November. The market has since extended its post-election momentum into the new year with a solid start to 2021. The stock market is…
currently hovering around all-time highs as investors remain optimistic about the potential for a coronavirus-vaccine-driven economic recovery this year despite.
Stocks closed at record levels yesterday on investor optimism about the efficacy of a proposed new round of stimulus in bolstering the economy. The S&P 500 rose 28.76 points, or 0.7%, for the sixth straight day and all three major indexes ended the day at record highs. The new Presidential administration is moving toward the passage of a $1.9 trillion relief bill with the goal of boosting consumer spending. This, coupled with fourth quarter earnings season optimism and recent short squeeze plays, has renewed investors’ interest in stock market investment opportunities.
However, though momentum stocks usually trade at premium valuations, it is becoming increasingly uncertain whether there is remaining upside in some of the fast-moving names. Novavax, Inc. (NVAX – Get Rating), Futu Holdings Limited (FUTU – Get Rating), Virgin Galactic Holdings Inc. (SPCE – Get Rating) and Skillz, Inc. (SKLZ – Get Rating) have gained significantly so far this year. But to us, it appears from their current valuation multiples that a pullback may be in the cards for them. So, we think it is better to avoid these stocks for now.
Novavax, Inc. (NVAX – Get Rating)
NVAX is a late-stage biotechnology company that is focused on the discovery, development, and commercialization of vaccines to prevent serious infectious diseases. The company’s proprietary recombinant technology platform combines the power and speed of genetic engineering to efficiently produce highly immunogenic nanoparticles designed to address urgent global health needs. NVAX is currently conducting late-stage clinical trials for NVX-CoV2373, its vaccine candidate against the coronavirus.
NVAX advanced more than 2,700% in 2020 as investors went bullish on its coronavirus vaccine candidate. The momentum was extended this year, and the stock is up nearly 187% year-to-date and closed yesterday’s trading session at $319.93. In fact, NVAX is on the cusp of tripling in value in just seven trading days. Its gains are being driven by promising interim efficacy data from its Phase 3 clinical trials in the U.K.
The vaccine has proved 89.3% effective overall and 95.6% effective against the original strain of COVID-19 , with no serious adverse events. This puts it on track for approval in the U.K. NVAX has submitted a rolling review to the European Medicines Agency (EMA), the U.S. FDA, U.K. Medicines and Healthcare products Regulatory Agency (MHRA) and Health Canada for Emergency Use Authorization (EUA) as it continues Phase 3 trials in the U.S.
NVAX’s efficacy is in line with its two prime competitors, Pfizer (PFE) and Moderna (MRNA), which have achieved 95% efficacy. But NVAX’s vaccine is easy to store, distribute and is apparently cheaper than the other two vaccines. Moreover, the company has lined up sufficient production capacity by collaborating with the world’s largest vaccine producer, Serum Institute of India.
However, new COVID-19 strains originating in the U.K. and in South Africa are raising serious concerns because they spread more easily. While both PFE and MRNA have said their vaccines can handle the new variants, NVAX’s ability to contain the new strain is still questionable. NVAX’s candidate demonstrated 85.6% efficacy against the U.K. strain, while it reported 60% efficacy against the South African strain in a Phase 2b trial in South Africa.
Hence, we believe NVAX’s recent surge was overdone and the stock has advanced too much too soon. It is still uncertain whether t the FDA will approve the vaccine for even an emergency use based on NVAX’s U.K. data. Also, with inoculation drives picking up pace worldwide, , the U.S. will have vaccinated a major portion of its population with at least one shot by the time NVAX completes its Phase 3 clinical trials and received regulatory approval.
NVAX’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of D which equates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
NVAX has a grade of F for Sentiment and D for Growth. Among the 481 stocks in the Biotech industry, it is ranked #332.
In total, we rate NVAX on eight different levels. In addition to the POWR Ratings grades I have just highlighted, you can see the NVAX ratings for Value, Momentum, Stability, Quality, and Industry here.
Futu Holdings Limited (FUTU – Get Rating)
FUTU operates a digitized brokerage and wealth management platform in Hong Kong, China, the United States, and internationally through its proprietary digital platform, Futubull. FUTU began operations in 2011, raising money from backers such as Tencent (TCEHY), Sequoia Capital, and Matrix Partners. FUTU went public in 2019 and is often referred to as the “Robinhood of China” and currently has more than 10 million users and $10 billion in total assets under management.
FUTU has been on a remarkable run since the end of December, with its stock price up nearly 180% year-to-date. The stock closed yesterday’s trading session at $128.00 after gaining 10.34% intraday. These gains have come primarily on the back of FUTU’s solid financials and rapid growth in 2020, which was published in its third quarter 2020 earnings report last November.
Over the last 12 months, FUTU has generated…
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