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3 Top COVID Stocks — Are They Tricks or Treats?

Halloween is coming, but our Fool.com contributors have been wearing masks for a while. Will these vaccine stocks lead us out of the pandemic?

This roundtable explores Novavax (NASDAQ: NVAX), Johnson & Johnson (NYSE: JNJ), and Atea Pharmaceuticals (NASDAQ: AVIR). Read more to see if these COVID-19 fighters are right for you and your family.

Image source: Getty Images.

1. Novavax is a fun and scary stock to own

Taylor Carmichael (Novavax): Novavax's COVID-19 vaccine is still not on the market anywhere, which has made the stock a real wild ride for investors. The vaccine specialist started off 2020 so small it almost qualified as a micro-cap, with its stock priced at $4 a share. When COVID-19 hit, however, the stock took off. Early investors were rewarded with a remarkable gain of almost 3,000% by the end of the year.

NVAX data by YCharts

Now Novavax is a large-cap with a market valuation just shy of $10 billion. Countries around the world have placed advanced orders for the biotech's COVID vaccine candidate, NVX-CoV2373. Novavax estimates it will be able to manufacture 2 billion doses in 2022. This year, however, the company has run into manufacturing delays as it must assure regulators that it can provide pure versions of its vaccine with no contamination issues. And these manufacturing delays have brought down the stock.

Early in the year, after Novavax released positive phase 3 data, the market bid up the stock price to an exuberant high of $330 a share. Since then it's been a scary drop all the way to a recent price of $131. Still, with its wonderful data, most long-term investors are happy they own shares. Novavax has already filed for an emergency use listing with the World Health Organization. Now it's just a matter of time until its COVID vaccine is allowed on the market and people start getting their shots.

2. Johnson & Johnson is a treat for your portfolio

George Budwell (Johnson & Johnson): If you're on the hunt for a COVID-19 stock that won't spoil your portfolio this Halloween, Johnson & Johnson should definitely be on your radar right now. Apart from the fact that the healthcare giant's COVID-19 jab was recently approved by the Food and Drug Administration as a booster shot for adults who got this vaccine at least two months ago, the company is also a Dividend King that has boosted its dividend for 59 consecutive years. And in light of its monstrous free cash flows on both a quarterly and annual basis, there's no reason to believe that this favorable trend will change anytime soon.

What's more, J&J is highly diversified from both a product standpoint and its global commercial footprint. For example, J&J sells a variety of well-known personal healthcare items, medical devices, and numerous pharmaceutical products. And in its latest quarterly earnings report, the company's domestic and international revenue was close to a 50/50 split. J&J's top line is thus insulated from both product-specific and country-specific downturns. Not many large-cap healthcare companies can make that kind of claim to their shareholders.

Although the healthcare giant's shares have lagged behind the broader U.S. stock markets for the better part of the last three years, its shares have frequently delivered market-beating total returns (when including the dividend) over the past 20-plus years. Moreover, J&J's stock is one of the few biopharmas that has actually posted a respectable gain (up 5.96% in total returns year to date) this year. By contrast, the SPDR S&P Biotech ETF, which is widely considered to be the industry's bellwether exchange-traded fund, is presently down by almost 12% so far this year. That fact alone is a testament to J&J's strength as a top growth and income vehicle.

Atea spooks investors

Patrick Bafuma (Atea Pharmaceuticals): When Merck (NYSE: MRK) announced positive results in COVID-19 for its oral anti-viral molnupiravir, investors may have seen potential in Atea Pharmaceuticals. Until recently it appeared that the small-cap biotech's oral treatment for COVID-19 was neck-and-neck with Merck as far as advancement in trials. Unfortunately, things didn't quite turn out as Atea investors were hoping for.

While the megapharma reported that the risk of hospitalization or death was cut in half if molnupiravir was taken, Atea was not so lucky. It saw no significant improvement in the amount of the SARS-CoV-2 virus in patients after treatment with its drug, AT-527, compared to placebo. While there was a trend toward a decreased viral load in high-risk patients who took the trialed therapy, ultimately it was not a statistically significant result. And regardless, molnupiravir had much better outcomes, will make it to market first, and Merck has larger pockets. The $200 billion pharma giant invested $2.5 billion in research and development in the second quarter alone, not to mention it had $11.4 billion in sales. Even if AT-527 were able to eventually make it to the COVID-19 market -- a long shot at this point, I think -- the road ahead is long and arduous.

Not all hope is lost: Atea does have a phase 1 drug for dengue fever in its pipeline. Globally the total addressable market for the disease -- which can be life-threatening and cause high fever, rash, muscle aches, serious bleeding, and shock -- is currently $500 million annually. By 2028 this market is estimated to go past $3 billion. And Atea does still have over $800 million in cash, more than enough to get this drug through trials.

Unfortunately, less than 10% of drugs that make it into phase 1 studies make it to the market. That is quite a bit of risk for investors considering Atea's most promising asset is for only a $500 million worldwide opportunity. Combine this with the high likelihood of being without a viable COVID-19 therapy after its COVID-19 flop, and unfortunately, Atea looks like a trick, not a treat, for investors this October.

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Patrick Bafuma has no position in any of the stocks mentioned. Taylor Carmichael owns shares of Novavax. George Budwell has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Atea Pharmaceuticals, Inc. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.


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