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March 6, 2020

Weekly line: The coronavirus caused a stock market crash, right? Not for these stocks.

Daily Briefing

    Stock prices in the United States and around the world have fallen sharply because of worries about the new coronavirus. In the United States, the stock markets last week saw their biggest weekly losses since the Great Recession in 2008, with the Dow Jones Industrial Average falling 12.4%, the S&P 500 falling 11.5%, and the Nasdaq Composite falling 10.5%.

    Our analysis: The 'recurring themes' of disease outbreaks

    While the losses show that investors are deeply worried about the coronavirus's potential impact on U.S. and global economies, not every company's stock has suffered equally. In fact, the coronavirus' spread actually has been a boon for some health care stocks, reflecting a trend we've seen before: Even as major disease outbreaks can cause widespread economic pain, health care stocks can actually see gains.

    Some health care stocks saw robust gains—and could be positioned for more

    For example, the Wall Street Journal's Alexander Osipovich reported that stocks for some biotech companies rose last week.

    Shares of Moderna increase by 4.9% last Wednesday after the company in a regulatory filing announced that it is working with two of its affiliates and NIH "'on a potential vaccine response to the current public health emergency.'" And the shares have continued to rise: The company's stock price was up 14% on Monday.

    Shares of the smaller biotech companies NanoViricides and Novavax also saw big gains early last week, surging 153% and 71%, respectively, last Tuesday. However, the stocks later gave up a portion of those gains, with NanoViricides seeing shares fall 55% and Novavax shares declining 28% the following day.

    George Budwell of The Motley Fool, a multimedia financial-services company, noted that drug companies could continue to see gains related to the new coronavirus, and specifically called out Gilead Sciences, Inovio Pharmaceuticals, Moderna, and Novavax as companies investors could use to "hedge [their] portfolio[s] against" the virus.

    Budwell also cited Alpha Pro Tech., which manufactures N95 face masks that providers use to protect themselves against infectious diseases while treating patients, as potentially promising for investors, and Motley Fool founders David and Tom Gardner separately flagged N95 face mask maker 3M as "one of the 10 best stocks to buy now."

    CNBC's Christina Farr reported that Teledoc and other telemedicine companies also "have seen their stock surge in the past week, and many private start-ups, from AmericanWell to Plushcare, tell CNBC they are bracing for increased usage."

    HealthCare Dive's Rebecca Pifer reported that Teledoc CEO Jason Gorevic during a recent investor call said the virus' spread could "fee[d] the flywheel that drives visit growth over time." Though, according to Pifer, Gorevic cautioned that it is "still too early to qualify the impact that the [coronavirus] outbreak could have on [Teledoc's] business."

    Why some health care stocks saw big losses

    But it's worth noting that not all health care stocks are poised to gain during disease outbreaks. As CNBC's Betha Coombs reported, the S&P 500 Managed Health Care sector last week experienced "its worst weekly loss since [February] 2009, falling more than 15%." Coombs noted that health insurers and hospitals also saw significant declines.

    For instance, Tenet Healthcare saw its shares fall 23% last week, while shares of Centene were down more than 23% from previous highs, according to Coombs. UnitedHealth Group shares began to rebound on Friday, but were still down nearly 17% from the week prior, Coombs reports. (Daily Briefing is published by Advisory Board, a division of Optum, which is a wholly owned subsidiary of UnitedHealth Group.)

    Experts say the losses stemmed in part from worries that providers and insurers might face higher-than-expected medical costs because of the coronavirus outbreak. But according to Coombs, some analysts believe the losses were an overreaction. J.P. Morgan analyst Gary Taylor told Coombs, "When you look at all the respiratory diseases that we've seen globally in the last 50 years, and ask 'have we ever seen one of those be materially impactful to total U.S. health care spending?'… the answer is no."

    And others noted that the new coronavirus may not be entirely to blame for the losses. Coombs reported that Raymond James analysts estimated about one-fourth of last week's losses among health insurance companies was due to the virus.

    Will markets calm down any time soon?

    It's clear that investors are still struggling to predict the financial impact of the coronavirus, as U.S. stock markets saw days with big gains and big losses across the last week.

    On the optimistic side, The Motley Fool's Maxx Chatsko noted a study published last week in JAMA found that most cases of the new coronavirus are mild and flagged "[e]ncouraging analyses and mathematical models" that "suggest[ed] the overall health impacts" of the outbreak "will not be nearly as severe as initially feared."

    Along those same lines, while cases of the new coronavirus have continued rising in many countries, Chinese officials on Sunday reported the lowest daily number of newly confirmed cases reported in the country since late January—suggesting it's possible to curb the epidemic's spread.

    But that doesn't necessarily mean the markets are out of the woods. If we've learned anything from the past two weeks, it's that the coronavirus' pandemic potential—and news of its spread—can spook investors, and it appears as if the United States' coronavirus outbreak is just beginning. 

    We'll be sure to keep you updated on the virus and its effects on the health care industry.

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