Swine Flu Investment Ideas

by Darwin on April 26, 2009

On Sunday, the US declared the Swine Flu as a public health emergency in the US, which inevitably will leave traders and investors wondering whether there are some swine flu stocks and investment ideas that make sense now.  This article is not meant to trivialize or denigrate the people impacted, but rather, simply provide some stock trading and investment ideas that make sense if in fact, the swine flu becomes pandemic and creates a true global crisis. I don’t believe we’re there at this point and don’t mean to sensationalize, but looking back at the Asian bird flu crisis, there were several investments that turned over rapid profits with the thinking that a flu pandemic was probable and investors were rewarded handsomely.

Update: Summer 2009 Swine Flu Stock Status Article

Since the emergence of vaccination for many diseases and the efforts of the CDC and other governmental organizations in preventing global pandemics, Americans and Western nations primarily, have become rather complacent when it comes to the threats of infectious disease, so much so that people now often fear the vaccine more than the disease itself, even when no evidence exists that the vaccine is actually unsafe.  Therefore, at the early stages of a potential brewing pandemic, I envision there will be some level of complacency or disbelief that the swine flu could cause damage of catastrophic proportions.  However, if this is the real thing, we could very well see panic and fear that puts the recent financial crisis to shame.  Once a flu strain jumps species and starts mutating rapidly, we could be in for another event where over a quarter of the world’s population is wiped out like the human species has encountered before.  On one hand, you have international travel and close living quarters which further propagates such a scenario, vs. a very organized, efficient and innovative medical and investigative network.  The question really is, are we lucky this time again?  I sure hope so.  But if not, these “swine flu stocks” and “swine flu investments” could reap rewards in this Black Swan scenario.

Just Go Short This is the most obvious and broad measure to combat a global disaster.  From buying a 3X negative ETF like FAZ (Financials would likely be hit to hardest) to simply selling individual stocks or indices short, this would be a shotgun approach.  I’d expect that airlines, casinos and other entertainment/travel stocks would be hit in a severe situation.

Buy Out of the Money Puts – This is the highest ROI option.  If you think indices are going to fall 30% or more on this, you may want to buy a 20% down put for pennies a few months out and be rewarded with a triple digit return if markets do tank.  For instance, the S&P500 ETF SPY is closed at $87 per share on Friday.  You could buy Jun expiry puts at the $70 strike for under $100 each.

If shares dropped to say 60, the contracts would each be worth well over $1000 plus whatever volatility premium is remaining for a return in excess of 1000%.

While this portends a worse case scenario where it’s evident within a month that this is the real thing, it’s insurance that some investors may want to consider, especially if they have a lot to lose on their long positions and don’t want to sell.  (More on Special Event-driven options strategies).

Companies that stand to benefit Do you recall last time when the Asian bird flu was picking up and Tamiflu was flying off the shelves?  Roche shares rallied and they eventually had to grant licenses to additional companies to keep up with demand I recall.  It’s possible we’d see Tamiflu depleted from global stockpiles quickly in such a scenario and we may see Roche benefit again.  While it’s a small drug and a rather large company, when demand spikes hundreds-fold and if they need to out-license for even a nominal royalty fee, at a minimum, the market may perceive another large runup.  Additionally, there are many smaller biotechs working on flu vaccines.  Whether any of these would be effective against a swine flu are yet to be determined, but you may see a quick rally in these shares.  For Swine Flu Stocks, consider both Novavax (up 75% on Friday on the news, see full CEO interview and analysis of why downside risk exists after this massive runup) and Biocryst (up 40% on Friday when the news broke) which will likely continue to run up this week on the news.  I will be updating on more companies and my trades, so be sure to follow my updates in real-time with RSS (What is RSS?).

Additional names garnering attention were: AVII, GNVC, DVAX, HEB, SVA.

Trading Strategies for Swine Flu Stocks: I think near term, these will continue to rally, especially if the news worsens.  Longer term, as soon as there’s the faintest glimmer that the swine flu pandemic is not on its way, these sell off massively, back to their levels from last week or perhaps with a small premium remaining.

Buy Gold – Nothing strikes fear into the hearts of traders like a pandemic event.  With gold already hovering above $900, an outbreak could send prices sky-high.  Consider the 1x ETF GLD or the 2X ETF UGL. I’d avoid the ETN GOE as it behaves erratically.

Intrade – While they don’t have anything up just yet, they used to have a bird flu prediction event.  As I had outlined here, there are opportunities to trade against world events and this will likely be up soon at Intrade with an events futures market.

Masks will also be flying off the shelves, as they are in Mexico now.  If you want to stock up, now’s the time.  I don’t know that there are any individual companies that stand to benefit since it’s more of a commodity item, but from a supply standpoint, something to consider.

In order to stay up to date on the most likely beneficiaries of this development, make sure to subscribe to this feed or email HERE.  For my real time trading updates related to Swine Flu Stocks (which I will be partaking in tomorrow!), Follow My Twitter.

What are your investment ideas in the event of a swine flu becoming pandemic?

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1 matthew turner April 28, 2009 at 2:19 pm

what are scientist actually trying to do… i’m only 15 and im interested. i was thinking maybe if they could disguise and anti-body that the virus will accept… then one with the virus it could destroy the nucleus… just an idea.

2 Darwin April 28, 2009 at 10:12 pm

That’s cool that you’re interested in this stuff; it’s an interest of mine as well given the years I spent in biotech manufacturing working on programs for some pretty virulent and contagious pathogens. Flu’s a bit tricky; it mutates so rapidly that the CDC comes up with a new vaccine every year based on what’s going on in the southern hemisphere months in advance. There are certain viruses that are relatively easy to protect against (heck, the smallpox vaccine was developed before modern medicine by scraping cowpox off postules on udders and injecting it – observant scientists had noticed the milkmaids weren’t getting smallpox in the same numbers that other people were and so on), but flu mutates so rapidly that a vaccine needs to be tailor-made just for the strain(s) that are most prevalent at the time and even then, it’s usually only say, effective 75% of the time due to the multiple strains and mutations occurring. It probably wouldn’t be a stretch to develop and commercialize a vaccine for the current strain, but the question is whether it would still be effective in 2 months after multiple mutations. It would also divert efforts and manufacturing capacity away from the conventional strains we’re going to see next year, which actually do kill tens of thousands each year (well, the sequalae of flu like pneumonia, not flu itself). When a flu jumps species and starts mixing dna with other strains, it can get real ugly. At this point, we just don’t know what’s going to happen.

Anyone making predictions at this point has no credibility in the scientific community.

3 Jr Accountant April 29, 2009 at 1:18 am

I wish my cojones were that large. I’d prefer to sit this one out… will be interesting to say the least.

Jr Accountant’s last blog post..Please Sir I Can Has More Bonus? – Citi Grows a Pair, Still Sucks

4 Alice May May 18, 2009 at 4:55 pm

I question whether there is an investment opportunity with companies that have made a commitment in business continuity technologies and facilities. These companies could be relatively immune to a pandemic and better positioned to eat the lunch of less well protected and prepared competitors.

5 Stock Forum May 18, 2009 at 5:22 pm

I will be linking to your site great article.

6 relaxed137 June 14, 2009 at 5:12 pm

ASFX.pk sells the thermofocus at walgreens and babies-r-us. It’s a no-touch thermometer and orders are going through the roof. Buy one for yourself so you can take temperatures with out getting the swine flu! The put out a swine flu PR on thursday and are up almost 600%


This thermometer (Thermofocus) was used heavily in ASIA during SARS

7 Dean July 13, 2009 at 6:57 am

Nice site Darwin.
Here are a few more swine flu companies you or your readers may want to check up on.
Biota Holdings BTA.AX receives royalties from GSK for the sale of Relenza, which is quickly gaining lost ground on Tamiflu. GSK announces Q2 results on July 22nd. I have a large position in Biota, but as it could earn its EV in the next 1.5 years there is still plenty of upside.
GSK – on top of Relenza sales it sells a lot of flu vaccines, so it gets two bites of the cherry.
CSL.AX pumps out flu vaccines faster than anyone.

All three companies have the added benefit of diversifying you out of USD.

No position is GSK or CSL, but CSL is on my watchlist.
PS Just below the submit button I notice the title of my most recent post. How’s that work?

Dean’s last blog post..The Odds are Stacked for Positive Gains

8 Darwin July 13, 2009 at 8:51 am

Thanks for that additional information, it’s been a while since I visited the topic. Probably due for a new post.

On your question regarding your last post, I share the “Comment Luv” which is a plugin that allows commenters to have their latest blog posts showing below their comments. It’s a neat way to encourage commenting and collaboration across multiple blogs.

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