ASX investors are looking for stocks benefiting from COVID but it's been tough to find long term winners
Health & Biotech
If there’s been one thing that stayed constant during the COVID-19 it’s that ASX investors are hungry for stocks that will make a buck out of the pandemic.
But a recap of the various shifts of money by investors has gone over the last 18 months shows two things.
First, this is easier said than done and second that there’s a difference between a short term cash boost and a long term structural benefit. Investors have hoped for the latter but received the former.
In the first few months of 2020, hand sanitisers were hot well before toilet paper and Zoono (ASX:ZNO) went from 8 cents to over $2 as demand for its virus killing substance went through the roof.
In the middle part of 2020, various companies began trying to make drugs or vaccines for the virus (most notably Mesoblast (ASX:MSB)) and many of them gained but again excitement waned as progress took longer than investors hoped and vaccines emerged fast.
Some of them admitted to Stockhead that vaccines were always going to be developed faster than drugs. While many of these companies are pressing on, investors moved towards stocks that could generate quicker returns.
That brings us to the first half of 2021, after vaccine candidates passed clinical trials and began to roll out globally.
While industry behemoth CSL (ASX:CSL) was hired by the Morrison government to produce the AstraZeneca vaccine, IDT Australia (ASX:IDT) rose after merely suggesting it might be able to help.
IDT shares more than doubled in a week, but it remains to be seen if they’ll be required.
However, there’s one sector that may have been sliding under the radar, and could be here to stay even with the presence of vaccines.
Namely, pathology stocks. These are companies that help detect COVID-19 and other diseases in the first place.
Belonging to this category are ASX stocks running pathology labs that help administer and process COVID tests (among other viral and disease tests) but also stocks that make dedicated testing products.
According to the prospectus of recently listed company Australian Clinical Labs (ASX:ACL) pathology accounts for 70 per cent of all healthcare decisions, and is a market of more than $5 billion in Australia. It also said COVID-19 has exemplified the role pathology plays in healthcare.
One such ASX stock with a niche test for COVID (as well as one for other diseases) is Lumos Diagnostics (ASX:LDX) which only listed on Monday.
It has two primary products in FebriDx (a finger-prick blood test which indicates if a person has a general bacterial or viral acute respiratory infection within 10 minutes) and CoviDx (an antigen test for COVID-19).
Speaking with Stockhead from the USA earlier this week, CEO Rob Sambursky said he expects demand for his company’s products to continue well into the future even with the vaccine roll out.
“Not everyone’s going to get a vaccine. If I use the US by example only 46 percent of the company is actually vaccinated for COVID and historically only 40-50 per cent of people would get a flu shot,” he explained.
“So we know COVID-19 is here to stay and we know the Delta variant is more contagious and leads to more medical problems or morbidity than the other strains.
“There’s no question [about] the need to know whether or not someone has COVID.”
Despite FebriDx only being a general test, Sambursky said knowing if a patient had any virus was an important first step in determining they had the virus.
“The test is good in ruling out a viral infection. So if you’re negative on FebriDx the chance of you having COVID is very small,” he said.
“If you’re positive for a viral infection on FebriDx and someone is unvaccinated they’re the perfect people to test for confirmatory COVID related results – to confirm they’re actually COVID-19 positive.
“Ultimately that initial triage starts with FebriDx.”
Another relevant ASX stock is Atomo Diagnostics (ASX:AT1) which makes COVID test kits. It listed in April 2020 and more than doubled on debut.
While enthusiasm waned it rebounded at the end of last month when its COVID-19 test got FDA approved.
Speaking with Stockhead at the time, CEO John Kelly said he expected demand to continue, noting we still didn’t know how long vaccines could last for and COVID tests could help with that.
“The official jury is still out on whether people need boosters, but I think the scientific consensus is they will,” he said.
“An accurate, easy to use test to see whether people had an robust antibody response or whether that antibody response has fallen away will be important for a number of years.”
Ultimately COVID testing is just one part of the branch of medicine known as pathology and there are several ASX stocks generally in the field.
And ACL said in its prospectus it believed pathology would continue to play a critical role in healthcare generally and potentially future pandemics. Since listing in April ACL lifted its net profit guidance by over 10 per cent to $82 million and $85.4 million.
Two other ASX pathology stocks that could benefit long term no matter what happens with the COVID pandemic are large caps Sonic Healthcare (ASX:SHL) and Healius (ASX:HLS).
While ACL has flatlined since listing, Sonic is up nearly 30 per cent and Healius is up 66 per cent since 1 January 2020.
In the first half of FY21, Sonic saw its revenue grow 33 per cent to $4.4 billion and net profit grow 166 per cent to $678 million and it specifically credited COVID-19 tests for the spike.
Healius also saw booming times, making a $75.6 million profit after tax — up 190 per cent from the prior corresponding period.
That continued into the March quarter, while it also saw a large number of COVID tests even its non-COVID revenue was growing.
Small cap Virtus Health (ASX:VRT) rounds out the list and it is up over 35 per cent this year and a half old decade. It didn’t see as large a boom but still saw a 21 per cent gain in revenue and 30 per cent gain in earnings excluding the impact of JobKeeper.
Health & Biotech
Health & Biotech
Health & Biotech
