The Ebola epidemic continues to surge in West Africa and the USA has seen its first domestic cases. Trading of Ebola related stocks is brisk but there are pitfalls to avoid. Our take on the situation is to beware of Ebola related stocks. An article in Market Watch notes that Ebola stock trading volume is high and perhaps too high.
As more and more investors are “chasing alpha” with the broader market off September highs, stocks rallying on Ebola fears may be investor traps given their recent parabolic gains and large trading volumes.
Companies that specialize in hazmat suits and protective equipment have been the biggest gainers since the first case of Ebola was confirmed on U.S. soil on Sept. 30. In that time, Lakeland Industries Inc. LAKE, +2.08% shares have gained more than 230% and shares of Alpha Pro Tech Ltd. APT, +6.77% have surged more than 170% on very large trading volumes. On Monday, Lakeland shares were up 18% at $23.08 in recent activity at more than 10 million shares, while Alpha Pro Tech shares rallied 19% to $8.85 on volume of more than 27 million shares.
Other stocks to watch are Chimerex and Tekmira Pharmaceuticals. Both are trading in the tens of millions of shares as well. The first two stocks make Hazmat suits, the gear donned by all those who treat Ebola patients in the USA. The second two are pharmaceutical stocks who might come up with a medication to treat Ebola or a vaccine to prevent it. While the hazmat suit makers have more than doubled in share price the pharmaceutical companies have seen increases of barely more than ten percent.
Speculation, Technical Analysis and Fundamentals
When the first US nurse caught Ebola from a patient in Texas it became clear that the disease ravaging West Africa could land in the USA as well. Then we found out that those potentially exposed to the disease were not quarantined near panic ensued. Those buying stocks in Ebola related companies were trying to get in on the ground floor before the disease spread widely in the USA. What has happened is that the vast majority of those who might have gotten the disease has gone past the twenty-one day watch period and never got the disease. Procedures for handling potential Ebola patients have been tightened up and the panic is subsiding. So, beware of Ebola stocks because as soon as the panic is gone traders are going to want to dump these stocks. If you choose to keep trading these stocks pay careful attention to technical analysis signals and take part of your profit now. The fundamentals are that for the time being the feared epidemic of Ebola in the USA has not happened. As noted in The Street fundamentals outweigh fear in regard to Ebola stock pricing.
The end of quarantine for most people who came into contact with U.S. Ebola victim Thomas Eric Duncan is a confidence boost to public health officials who’ve been struggling to assure Americans that the deadly virus isn’t easy to spread. The news might also be a reality check for investors trading Ebola stocks to all-time highs.
iBio (IBIO) , for example, has jumped almost seven-fold since early September on speculation that the tktk-based company’s plant-based antibody manufacturing technology would play a big part in ramping up production of ZMapp, the experimental Ebola drug used to treat several infected patients already before supplies ran out. The truth is more sobering: iBio is a tangential player in one of several ZMapp manufacturing plans under consideration. The odds of iBio generating meaningful revenue from ZMapp are small relative to the company’s almost $200 million market value.
If you are doing anything other than day trading these stocks you need to learn the fundamentals that could drive sales and profits.
Vaccination for Ebola
According to ABC News Ebola vaccine trials could start as early as January in West Africa.
Dr Marie Paule Kieny, an assistant director general for WHO, said clinical trials that are either underway or planned in Europe, Africa and the U.S. are expected to produce preliminary safety data on two vaccines by December.
If the vaccines are declared safe, she said they will be used in trials in West Africa beginning in January to test their effectiveness among tens of thousands - but not millions - of people.
If any of the vaccines to be tested prevents the disease one could expect massive vaccination campaigns across the regions of Africa where the disease is endemic and the requirement that anyone who travels to these regions will need to get vaccinated. Although we say to beware of Ebola related stocks making protective gear, anyone who comes up with an effective vaccine will be a big winner and worth trading or even investing in long term.
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