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Best-performing defensive stocks on U.S. equity market

15 May 2020
Best-performing defensive stocks on U.S. equity market

Our portfolio of U.S. countercyclical stocks (healthcare and biopharma) since January 30 is up by 129.31% in U.S. dollars, while S&P 500 is down by 10.42%

Our portfolio of U.S. countercyclical stocks (healthcare and biopharma) since January 30 is up by 129.31% in U.S. dollars, while S&P 500 is down by 10.42%. The portfolio consists of defensive stocks mostly healthcare and biopharma that outperformed most since the start of the COVID-19 pandemic.

The companies that were initially included develop vaccines and produce personal protective equipment, which is in high demand now.

On May 11, Wuhan reported its first cluster of coronavirus infections since a lockdown on the city, the epicentre of the outbreak in China, was lifted a month ago, stoking concerns of a wider resurgence. The five new confirmed cases come amid efforts to ease restrictions across China as businesses restart and individuals get back to work. On May 12, Dr. Anthony Fauci, the U.S. leading infectious diseases expert, expressed a fear that if cities and states do not adhere to the government's guidelines on when and how they can begin to reopen, there could be more COVID-19 outbreaks. Fauci said that coronavirus vaccines or treatments are unlikely to be widely available by this fall.

As of May 15, confirmed COVID-19 cases have exceeded 4.56 mln globally, with over 304,000 fatalities.

The latest development by company:

1. Gilead Sciences (GILD)

On May 7, Japan approved Gilead Sciences’ Remdesivir as a treatment for COVID-19. Remdesivir was granted emergency use authorization by the U.S. Food and Drug Administration (FDA) for COVID-19 on May 1. Gilead Sciences CEO Daniel O’Day said the drug will be available for patients from May 4.

Gilead Sciences has struck a licensing agreement with five generic drugmakers to make antiviral drug Remdesivir for 127 countries, not including the United States.

The research that led to Remdesivir began as early as 2009, but the potential treatment for hepatitis C didn’t work as hoped. It got a second chance during an Ebola outbreak in Congo, showed limited effects but proved safe to use on people. Lab tests, however, suggested it might have potent effects against coronaviruses such as those that cause SARS and MERS. As it became clear that Covid-19 was also caused by a coronavirus, Remdesivir was one of the few potentially helpful drugs ready to be in clinical trials.

2. Moderna (MRNA)

On May 7, the FDA has granted the fast-track designation to the Moderna’s mRNA vaccine (mRNA-1273) candidate against COVID-19, clearing it for a phase two trial. Moderna said it is finalizing plans for a phase three trial as early as this summer.

3. 3M (MMM)

U.S. Department Of Defence awarded two contracts to 3M for N95 masks supplies. The company said as of last week that it has invested more than $80 mln in increasing respirators production since the COVID-19 outbreak began in January, doubling its global output of respirators to 1.1 bln per year. The company is producing 35 mln N95 masks per month in the U.S. and is on track to increase output to 95 mln masks per month.

4. Honeywell (HON)

On May 12, Honeywell announced a new ThermoRebellion temperature monitoring solution that can be rapidly deployed at the entryway of a factory, airport, distribution centre, stadium or other commercial buildings to quickly and efficiently identify whether personnel exhibit an elevated facial temperature and if individuals are wearing the necessary personal protective equipment. As countries are reopening their economies and Honeywell temperature monitoring solution is expected to be in high demand.

5. Novavax (NVAX)

The Coalition for Epidemic Preparedness Innovations (CEPI) will invest up to $384 mln to help develop and produce Novavax’ COVID-19 vaccine candidate, the company said on May 11. CEPI, which was set up to fight emerging epidemics, said in March it would invest $4.4 mln into deals with Novavax and Britain’s University of Oxford to develop potential vaccines against COVID-19. CEPI has so far invested in the development of six vaccine candidates against COVID-19. An early-stage trial will start in May in Australia and mid-stage trials in multiple countries will follow successful top-line results expected in July, Novavax said. Novavax said the funds will be used to scale-up production of the vaccine by potentially allowing it to make up to 100 mln doses by the end of 2020 and 1 bln doses by end of 2021.

In addition to leading vaccine producers, it is also reasonable to take a look at other companies.

Johnson & Johnson (JNJ) plans to begin human clinical trials of its Covid-19 vaccine by September. J&J aims to produce 600-900 mln doses of its potential coronavirus vaccine by April 2021 if human trials go as planned.

On May 5, Pfizer and BioNTech said they have begun delivering doses of their experimental coronavirus vaccines for initial human testing in the United States. Pfizer and BioNTech’s programme consists of two vaccines based on nucleoside modified mRNA used by Moderna.

Sanofi (SNY) and GlaxoSmithKline (GSK) are planning to start vaccine candidate trials in the next few months and, if successful, subject to regulatory considerations, aim to complete the development required to make the vaccine available in the second half of 2021.

 Defensive portfolio

Source: Bloomberg, ITI Capital

Portfolio value

Source: Bloomberg, ITI Capital

Defensive portfolie vs S&P500

Source: Bloomberg, ITI Capital