Last-mile logistics will play one of the most important roles in vaccine distribution.
The COVID-19 vaccines are here.
In what is being called an “historic, unprecedented achievement”, the scientific community has essentially done the impossible: develop numerous vaccines in record time for a brand new virus that was only sequenced back in January 2020.
As of December 10, 2020, the World Health Organization counted 52 candidate vaccines in clinical evaluation of which 13 have already completed Phase 3 clinical trials and are in the process of being released.
The developer/manufacturers include:
- Wuhan Institute of Biological Products/Sinopharm
- Beijing Institute of Biological Products/Sinopharm
- Bharat Biotech
- University of Oxford/AstraZeneca
- CanSino Biological Inc./Beijing Institute of Biotechnology
- Gamaleya Research Institute
- Janssen Pharmaceutical Companies
- Anhui Zhifei Longcom Biopharmaceutical/Institute of Microbiology, Chinese Academy of Sciences
- BioNTech/Fosun Pharma/Pfizer
- Medicago Inc.
Not surprisingly, many investors have decided to load up on these pharmaceutical companies in order to profit from the global distribution of the vaccines.
For example, Pfizer (NYSE:PFE) is the first company to receive the emergency use authorization from the FDA for their vaccine. The stock recently touched a 52-week high when it hit $43.08 per share on December 9, 2020. Similarly, Pfizer partner BioNTech SE (NASDAQ:BNTX) reached a 52-week high when it reached $131.00 per share on December 11, 2020.
And perhaps the best performing pharma stocks this year are Novavax (NASDAQ:NVAX) and Moderna (NASDAQ:MRNA).
On January 2, 2020, NVAX opened at just $3.99 per share and on December 14, 2020, the stock reached $135.46 per share for a massive gain of 3,295%. MRNA began the year at just $19.57 per share and on December 14 it reached $163.76 per share for a total gain of 737%. But while these companies have seen their share prices surge to record highs over the last year, their stocks may not be the best investments to buy as we head into 2021…
A Goldmine in Vaccine Distribution
While investing in companies that produce vaccines may seem like the obvious bet to make, investors will find that any potential upside has essentially been priced into the stock – making them extremely overvalued and risky at these prices.
As a result of their lofty valuations, investors are increasingly looking at other ways to potentially profit from the vaccine distribution boom.
For example, McKesson Corporation (NYSE:MCK) is an undervalued healthcare company for wholesale medical supplies & equipment, pharmaceutical distribution, and healthcare technology in the U.S. and abroad. The company will function as a centralized distributor of COVID-19 vaccines for the U.S. government.
West Pharmaceutical Services, Inc. (NYSE:WST) manufactures and sells containment and delivery systems for injectable drugs and healthcare products in the United States, Germany, Ireland, France, Other European countries, and internationally. It too will play a role in the distribution of the vaccines.
And because Moderna’s and Pfizer’s COVID-19 vaccine needs to be transported and stored at very low temperatures for them to be effective, speculators are buying up the stock of dry-ice companies like Air Products and Chemicals, Inc. (NYSE:APD) to potentially play the boom as well.
Then there are the pharmacies themselves, such as CVS (NYSE:CVS) and Walgreens (NASDAQ:WBA), both great ways to gain exposure to the administration of vaccines to the general public. But perhaps the least speculative and most profitable way to profit from widespread vaccine distribution, is none other than FedEx Corp. (NYSE:FDX)
Last-Mile Logistics: the best way to play the vaccine boom
From vaccine development to storage to distribution to administration, there are multiple companies in every stage that will compete against each other and essentially split the revenues.
However, when it comes to actually transporting the vaccine, there are only two companies that effectively control the entire market for last-mile logistics: FedEx and UPS.
UPS and FedEx have dominated the US logistics industry for decades — in particular, the last mile of delivery, where a courier brings a customer their order. FedEx estimates that more than 95% of all e-commerce orders in the US are delivered by itself, UPS, or the US Postal Service (which we know is not exactly a well-run operation).
Because of this duopoly that exists in logistics, both businesses have essentially become critical to the vaccine distribution efforts.
FedEx and UPS have roughly divided the nation in two. Based on plans developed in coordination with the federal government’s Operation Warp Speed, FedEx will supply the western states while UPS will supply the eastern states, and both will benefit immensely as the rollout continues in the weeks and months ahead.
However, between the two companies, FedEx is the most attractive stock at current prices.
For the 3 months ended August 31, 2020, the company reported revenue of $19.3 billion – up 13% YOY. Meanwhile, net income was $1.245 billion – up a whopping 67% YOY as well.
More importantly, back in May 2020, management also announced that they would suspend their stock buyback program and not increase their dividends for a year.
So while the company generated tons of free cash flow ($1.227 billion) in their most recent quarter, none of these funds were distributed.
As a result, the company’s cash balance swelled to $6.954 billion – which will likely be distributed to shareholders in the near future in the form of higher dividends and/or share repurchases.
This means that FDX stock will likely benefit in the medium term when these programs resume. If you’re looking for a company that enjoys a duopoly over last-mile logistics, boasts a strong competitive advantage, and is going to profit immensely from the COVID-19 vaccine boom, FDX is your stock to watch.
-Investing Insider Magazine