Kris’ note: If we had to choose just one asset class right now – meaning we couldn’t invest in any other asset (except cash) – we would choose warrants. Hands down, they are the most versatile, effective, and lucrative investments we’ve come across.
Just like a stock, warrants let you invest in a real company… with real products, real revenue, and often, real profits. But on top of that, warrants have built-in leverage, which means you only need to invest a small stake to see outsized gains.
In today’s essay, colleague Andrey Dashkov provides an example of how you can use warrants to take advantage of one of the big sectors on his radar…
By Andrey Dashkov, analyst, Casey Research
We’re in the “long-COVID” period now.
It means that the virus may not go away soon. It will continue infecting people across the world, despite vaccines trying to snuff it out.
Some call it “this generation’s polio,” meaning that we will have to learn to live alongside COVID… and that it will keep haunting the world potentially for decades…
If that turns out to be the case… it will be a boon for some pharmaceutical companies.
In today’s Dispatch, I’ll tell you about some of the best ways to invest in the pharmaceutical industry…
Because as long as COVID stays at the top of our minds, the companies that deal with it will also be on everyone’s radar.
If this is your first time reading the Dispatch, welcome. If you’ve been here before, welcome back.
At the Dispatch we have two goals:
To introduce you to the most important investing themes of the day, and
To show you how to profit from them.
We do this by showcasing ideas from our in-house investing experts: Dave Forest and Nick Giambruno. And from the founder of our business, Doug Casey.
Now, let’s see where the next pharma opportunity is.
Careful With COVID Superstars
In 2020, Pfizer and Moderna – the companies that produced some of the most widely used vaccines – saw their share prices behave in wildly different ways.
While Moderna booked a 443% annual return in 2020, Pfizer’s shares lost 6%.
Several factors came into play… but what hurt Pfizer a lot was a bad performance by its non-COVID portfolio.
Pfizer is a large $236 billion company, and a single drug may not move the needle much… even if the whole world is begging for it.
Moderna’s stock grew over 440% because it was much smaller to begin with. Back in January 2020, its market capitalization was just $6 billion – against Pfizer’s $216 billion. So COVID vaccine sales were much more important for Moderna.
Now, Moderna’s vaccine sales for 2021 are projected at over $19 billion… and a market cap of $140 billion.
The takeaway here is… even with great demand for a company’s product, performance is not guaranteed.
You should always diversify your portfolio, even if you want to bet on some of the best-known stocks, like Pfizer.
But besides the need to diversify, the Pfizer vs. Moderna performance difference taught us that smaller-sized companies could win if the tech they focus on gets traction.
A Better Way to Play Small-Cap Pharma
As the world keeps fighting “long-COVID,” the pharma and biotech industries will be at the top of everyone’s mind.
And they will continue raising billions of dollars.
In the first quarter of this year, the biotech industry raised a record $28 billion.
This is great news for investors…
These financings will fund future breakthrough technologies… and help some investors make fantastic returns.
But while most investors will only buy regular stocks in this sector… here at Casey Research, we think warrants are a great way to supercharge your gains.
Here’s an example why…
Valeo Pharma (VPH.CN) is a Canadian pharmaceutical company with warrants trading on an exchange.
It means that investors can buy and sell them as easily as they do shares.
And since January 2020, the company’s warrants showed stellar performance. At one point, they were up over 1,700%, while the stock was only up about 295%.
This peak performance didn’t last long, but as of writing, the warrants are still up over 573%.
The shares are only up about 83%. (Keep in mind, we’re not recommending this company now. We’re only using it here as an example.)
In the past, we’ve mentioned that warrants aren’t meant to be a long-term investment. This example proves our point.
But with investor interest in pharma at all-time highs, there will most likely be new financings, new warrants beginning to trade, and new opportunities for warrant investors.
Plus, warrants are perfectly suited for individual investors because of their low volume. Our in-house warrant expert Dave Forest explains why:
[L]ow volume makes warrants too small for major players like hedge funds or algorithmic traders.
Those massive investors need to move millions, or even billions, to make it worth their while and for them to make a profit. So warrants simply aren’t worth it for them.
That’s why warrants are dream investment vehicles for individual investors. They’re too small for the big guys… but they’re a perfect way for regular investors (like you) to grow individual wealth.
So warrants are a great way to play the biotech sector, especially if you follow our advice and target the smaller companies over the household pharma names.
Analyst, Casey Research
P.S. For the best and most accessible warrants research on the market… you only need to turn to my colleague Dave Forest. His track record on warrants is incredible.
His subscribers have already seen gains of 393%… 2,805%… and 4,942%. And you can too. Check out his research right here.