Stocks took a hit last week after news about the emergence of a “heavily-mutated variant” discovered in South Africa triggered a sharp decline in stocks on Friday. The sell-off during the abbreviated session, amid low volume, was the worst in the past two months, leaving the Dow to finish the week 2% lower. During the holiday, the S&P 500 and the Nasdaq lost 2.2% and 3.5%, respectively.
Despite last week’s route, market sentiment has been firmly planted in optimistic territory lately, as reflected by just a single 5% pullback in 2021 and well-above-average market gains so far this year. With renewed pandemic threats emerging while the Fed is making plans to reduce monetary stimulus, optimism could wane in the year to come. This doesn’t mean that the bull market is facing potential demise. However, reconsidering expectations for 2022 seems wise.
In this week’s watchlist, we’ll discuss a biotech name that could benefit as drugmakers race for a solution to the new, possibly more contagious variant. We’ve also got a solid investment in a robust, young industry and a large-cap that seems to have found its lane.
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The new strain of the COVID-19 virus, Omicron, initially discovered in South Africa last week, has sparked alarm among epidemiologists worried the mutations could make the variant more transmissible. Some biotech stocks will likely benefit as drugmakers race for a solution to the new threat.
One name we will be watching as new developments around Omicron arise is Vir Biotechnology (VIR). The commercial-stage immunology company focused on combining immunologic insights with cutting-edge technologies to treat and prevent infectious diseases. Its current development pipeline consists of product candidates targeting COVID-19, hepatitis B, influenza, and human immunodeficiency virus.
The company’s partnership with GlaxoSmithKline (GSK) on Sotrovimab, a dual-action antibody, is helping increase the drug’s reach. The FDA granted Sotrovimab emergency authorization in May after it was shown to reduce the risk of hospitalization or death by 79% in adults with mild-to-moderate Covid-19 at high risk of progressing to severe disease. Yesterday, the Wall Street Journal reported that the U.S. would increase its recent order for 300,000 doses of the treatment, bringing its total contract to $1 billion up from $651.1 million. Binding agreements have already been received for the sale of more than 720,000 doses of Sotrovimab worldwide. Plus, the treatment is still undergoing review in several nations, which means plenty of untapped potential.
Baird analyst Joel Beatty increased his projected 2021 total revenue projection for VIR from $426 million to $644 million upon announcement of the second contract with the U.S. government for additional doses of Sotrovimab. He also raised his price target for the stock from $35 to $36 in light of the new contract.
There’s much more to Vir’s pipeline than just their COVID antibody. Along with some established collaborators, the company has made headway in some of the most profitable infectious diseases. For instance, their stage 2 collaboration with Anyalam on siRNA (small interfering RNA) and antibody treatments for hepatitis B has produced VIR-2218; a treatment experts have touted as the potential best-in-class siRNA and a “backbone” of hepatitis B therapy.
Vir also has exciting prospects in HIV and influenza. Their collaboration with the Bill & Melinda Gates Foundation on a T-cell treatment for HIV is rounding the corner into the second phase. If all goes according to plan, Vir investors could have a significant victory on the horizon.
JPMorgan analyst Anupam Rama recently upgraded Vir, saying that the company’s broader pipeline (beyond COVID) should come into increasing focus in the next 12 months. The analyst said he will be looking for the broader non-Covid pipeline to “emerge as a larger component value driver.”
The current consensus among 8 polled analysts is to Buy VIR. There are 5 Buy ratings and 3 Hold ratings. There are no Sell ratings for the stock. A median 12-month price target of $67.75 represents a 92% increase from the last price.
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One of the biggest threats to corporate America is ransomware. The growing possibility of losing access to essential or confidential digital property is a nightmarish scenario for executives as the financial consequences can be enormous.
Cybersecurity is a young, quickly evolving industry, so betting on individual stocks can be especially risky. If you’re looking to benefit from this trend, why not consider owning a broad spectrum of cybersecurity stocks through an exchange-traded fund (ETF)?
First Trust NASDAQ CEA Cybersecurity ETF (CIBR) is an ETF focused on companies that protect against cyberattacks. CIBR tracks an index of companies engaged in the cybersecurity segment of the tech and industrial sectors. To make the cut, a company must be classified as a cybersecurity company by the Consumer Technology Association (CTA) and have a minimum market cap of $250 million. This means it holds software and networking companies but also branches out from the tech sector into more diversified industries like aerospace & defense. This slightly expanded focus is the primary distinction between CIBR and similar funds, most of which have small, tech-dominated portfolios.
To ensure liquidity in the underlying stocks, which is a concern for ETFs that invest in small-cap names, companies must have a minimum free float of 20%. The index then weights stocks based on their underlying liquidity and imposes caps on how large any one security can become. The portfolio includes familiar names like Cisco Systems, Akamai, and NortonLifeLock.
First Trust NASDAQ CEA Cybersecurity ETF (CIBR) Summary
- Weighted Average Market Cap $48.66B
- Price / Earnings Ratio 87.06
- Price / Book Ratio 8.96
- YTD Total Return 22.97%
- Yield 0.2%
- Expense Ratio 0.6%
- Net Assets 4.06B
- Number of Holdings 37
- Top Holdings Palo Alto (PANW), Accenture (ACN), CrowdStrike (CRWD)
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Cintas (CTAS) provides corporate uniforms and apparel, as well as first aid, safety, cleaning, and restroom products and services. The company leads the market in the $25 billion uniform rental space. It is poised to benefit as increased emphasis on hygiene due to Covid should increase adoption of facility services and the propensity to outsource uniforms.
“Reopening and focus on Health, Hygiene, and Safety due to COVID and ESG has driven increased demand for Commercial Services. In particular, solid demand for cleaning/disinfecting solutions and a greater propensity to outsource facility, uniform rentals, and food services should drive solid growth for Commercial Service providers,” RBC’s Ashish Sabadra and John Mazzoni said in a report.
The company’s scale provides advantages in operating leverage, which should help combat inflationary pressures. Meanwhile, potential growth opportunities in healthcare, education, and government organizations should help CTAS expand its customer base.
Of 16 polled analysts, 8 rate the stock a Buy, 6 rate it a Hold, and 2 rate it a Sell. A median 12-month price target of $450 represents a 6% increase from its current price.
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