Edge-ucation / Market Commentary

Pandemic Gainers: The COVID Catapult

  • Edge Editorial Team

    At Edge Investments, we make investing in small cap stocks enjoyable and edge-ucational. We are here to teach you about investing, keep you up to date on news, and help connect you with companies that you may have a desire to invest in.

    View all posts

[fusion_builder_container type=”flex” hundred_percent=”no” equal_height_columns=”no” menu_anchor=”” hide_on_mobile=”small-visibility,medium-visibility,large-visibility” class=”” id=”” background_color=”” background_image=”” background_position=”center center” background_repeat=”no-repeat” fade=”no” background_parallax=”none” parallax_speed=”0.3″ video_mp4=”” video_webm=”” video_ogv=”” video_url=”” video_aspect_ratio=”16:9″ video_loop=”yes” video_mute=”yes” overlay_color=”” video_preview_image=”” border_color=”” border_style=”solid” padding_top=”” padding_bottom=”” padding_left=”” padding_right=””][fusion_builder_row][fusion_builder_column type=”1_1″ layout=”1_1″ background_position=”left top” background_color=”” border_color=”” border_style=”solid” border_position=”all” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding_top=”” padding_right=”” padding_bottom=”” padding_left=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”small-visibility,medium-visibility,large-visibility” center_content=”no” last=”true” min_height=”” hover_type=”none” link=”” border_sizes_top=”” border_sizes_bottom=”” border_sizes_left=”” border_sizes_right=”” first=”true”][fusion_text]The pandemic introduced a strange new reality for all of us, the last couple of years. 

We aren’t the only ones being affected, though. Let’s look at the way the equities markets behaved. 

What was looking like the start of a market crash, quickly became one of the biggest bull markets in our decade. 

Since the second quarter of 2021, it appears we’re in what some refer to as a “kangaroo market”: moving sideways, with intermittent bouts of bullish and bearish activity. While we’re here, it’s important that we look back and reflect on what happened in the last 18 months, and what we may be able to learn from it. 

The Pandemic Effect 

We all saw what happened in March 2020. 

Investors experienced 3 of the 10 worst single-day percent declines for U.S. stocks since the 1980’s: 

  • March 16, 2020: -11.98% 
  • March 12, 2020: -9.51% 
  • March 9, 2020-7.60% 

Fear spread throughout the entire marketplace, with even the most well-established blue chip stocks and market exchanges taking hefty dips. 

From February 13th to March 23rd: 

  • The Dow Jones Industrial Average dropped 36%. 
  • The S&P 500 took a 33% fall. 
  • Apple Inc. ($AAPL) dropped 30%. 

Not to mention, small caps of all kinds took even greater dips. Speculative companies whose valuations had already priced in future growth suffered greatly. 

Until something odd happened… 

The market started seeing unprecedented levels of volume and bullish activity. 

The market “crash” saw a full recovery by September 2020, and we entered one of the greatest bull markets in recent history. 

As unemployment continued, America and Canada went into lockdown, and small businesses were closing their doors, the equities market barreled full speed ahead. 

The Federal Reserve printed billions, and then trillions, of dollars to stimulate the economy. 

And to an extent – it worked… For the market, that is. 

There were a few notable aspects to the surprising pandemic bull market… 

Special Purpose Acquisition Companies (SPACs) 

SPACs were on a tear during 2020. It all started with Chamath Palhapitiya’s (Canadian venture capitalist) first SPAC, Social Capital Hedosophia ($IPOA). The public “vehicle” was set to merge with Richard Branson’s most notable space company, Virgin Galactic. First, this speculative, revenue-less company saw its share price go from the SPAC floor price of US$10, up to US$20 prior to the merger, and move towards US$40 once the merger was announced. In time, though, excitement cooled, and the stock pulled back completely to its earlier prices. 

Once the market mania relaxed and summer was around the corner, SPACs everywhere saw unprecedented levels of activity. Users on TikTok may recall videos going around about people touting a company called VectoIQ Acquisition Corp ($VTIQ), which was a SPAC priced at US$10 that was rumored to be merging with Nikola, a new electric vehicle company. The SPAC’s valuation doubled on rumours and once the merger was finalized, Nikola’s new ticker, $NKLA, skyrocketed to over US$65 per share. 

The company had no revenue and only conceptual ideas for their touted electric vehicles. We all know that the market is full of speculation, and lots of bets turn out well. However, a valuation topping US$30 billion for what Nikola had to offer was far too excessive. It was a matter of mere months before the stock settled back to the initial SPAC price. 

Other notable SPACs that disrupted the pandemic market include: 

  • Churchill Capital Corp ($CCIV), who merged into Lucid Motors ($LCID) after skyrocketing past $60 per share. 
  • Tortoise Acquisition Group ($SHLL), who merged into Hyliion Holdings Corp ($HYLN) after shooting to a high of $57 per share. 
  • Forum Merger II Corp ($FMCI), who merged with Tattooed Chef ($FMCI) after nearing $30/share as a SPAC. 

While the merger acquisition was often the bullish event that investors anxiously waited for, the SPAC market became so speculative that the share prices of the stocks would start tanking as soon as the merger was complete. Many of these SPACs saw higher prices as a SPAC than as an actual company! 

Health Stocks Surge 

Understandably, any stock that did business in the healthcare sector, especially with any relation to COVID-19, saw mass attention and trading volume. 

Many penny stocks such as XpresSpa Group Inc. ($XSPA) who had a chain of… well, express spas at airports, had added COVID-related business to their mandates. The news that the company had simply planned to use their quick-style spa locations in airports to test for COVID-19 brought stars to investors’ eyes. The company bottomed at a ~US$45 million valuation and peaked at a ~US$800m valuation in a mere 2 months. 

While we are not sure how the COVID-19 test plan rolled out, the company has settled since and sits at $1.57 per share today, at a US$165 million valuation. 

Plenty of businesses globally capitalized on the pandemic as a means to boost their stock price, although a couple of game-changers received the bulk of notoriety due to their spearheading of the production and distribution of vaccines globally. 

Moderna, Inc. cleverly took the symbol $MRNA to complement their mRNA vaccine technology and was trading in the ballpark of $25-$30/share during March of 2020. The stock steadily climbed its way towards $100/share in late 2020. It was only a matter of time before it reached close to $200 per share at the peak of the bull market in Q4 2020 and Q1 2021. 

As the entire market relaxed and got a small dose of reality throughout Q2 2021, Moderna did quite the opposite. As their vaccine started to roll out around the springtime, their stock came just short of a whopping $500/share. The company continues to float around levels exceeding $430/share as they continue to work on various medical projects using mRNA technology. 

Did you know? mRNA medicines don’t introduce new molecules to the body, like traditional pharmaceuticals. Instead, mRNA medicines are sets of instructions which direct cells in the body to make proteins to prevent or fight disease. 

Novavax Inc. ($NVAX) is another vaccine producer that saw $MRNA-like surges as a result of the pandemic. Starting the pandemic off in the sub $20/share range in March 2020, $NVAX jumped up to a high of $170/share in August 2020. As vaccines rolled out and the economy slowly started re-opening earlier this year, $NVAX saw highs of $330 per share. 

Being considerably more conservative in share structure with only ~50 million shares outstanding, Novavax sits at around $230/share today, at a market cap of US$17.1 billion. Despite the price similarity to $MRNA, the stock has a lower valuation due to having fewer shares outstanding. Analysts often see this as a good growth opportunity when the market cap of a stock is below that of its peer comparables, regardless of share price. 

The Rise of the Retail Investor 

The pandemic era brought on a surge of retail investing. Chatroom and forums on platforms such as Reddit became notorious, with legions of witty followers touting stocks, analyzing news releases, and discussing trading strategies. 

In fact, 15% of retail investors today started in 2020. Retail took up 17% of the market in the start of 2020, compared to only 10% in 2010. By the summer of 2020, this number reached 25%. 

Six of the most popular online brokerages for retail investors, including Robinhood, have 100 million users actively participating with their services. These brokerages saw their average daily trading volumes spike from 6.6 million to 8.1 million in a mere month, from December 2020 to January 2021. 

Robinhood itself broke records this year, recently listing on the Nasdaq under the ticker $HOOD. In fact, its 13 million users in 2020 (about twice the population of Arizona) is over double the amount they had in 2018. The company is on track to have 18 million users by the end of 2021. 

The spike in retail investing, as well as a record-breaking year for IPOs, made many analysts add some caution in their strategy, considering both these signs were present during the dot com boom of the early 2000s.

Standout Stocks 

There were many notable stocks that experienced significant share price movement and unprecedented trading volumes during the pandemic, and a few stood out to us. As a result of pandemic conditions, it was inevitable that certain companies would become more valuable. However, not every stock price surge during this period made sense. As we know very well with the mania surrounding GameStop Corp. ($GME) and AMC Entertainment Holdings ($AMC), sometimes there are factors other than obvious economic catalysts that lead to wild stock movements. 

Zoom Video Communications Inc. ($ZM) 

Just as people say “Kleenex” instead of facial tissue, the phrase “video call” seems to have been replaced by the word “Zoom”. Zoom ($ZM) has officially (and perhaps even unintentionally) nestled its way into the day-to-day communications of people wishing to communicate virtually. 

The stock was already on a tear leading up from its market debut in 2019. However, as you can imagine in a world where social distancing measures were enforced globally, a leading communications provider such as Zoom is destined to be seen as a high-value company. This is a fitting example of a stock that expectedly surged due to updated economic conditions. 

  • March 2nd, 2020: $113/share 
  • All-time pandemic high – October 19th, 2020: $588/share 
  • Today (2021/9/21): $278/share 

Tesla Inc. ($TSLA) 

Tesla ($TSLA) is, without a doubt, a one-of-a-kind stock. Although share price performance from its market debut in 2010 until now was already impressive, 2020 saw some major pandemic-induced action. 

Keep in mind that the prices we quote are pricing in the share split. Tesla increased the number of shares outstanding and reduced the share price to continue to appeal to everyday investors. Today, Tesla’s share price would be somewhere near Amazon’s if this share split did not occur. Let’s face it, $3000 per share can be intimidating, and many retail investors don’t have the $3000 required to fork out for a single share! 

The company has always been ahead of the curve: producing a huge line of electric vehicles; including more affordable models; selling regulatory credits; producing efficient power supply technologies; and more. 

Plus, there’s Elon’s Twitter activity. That would require a lifetime to untangle. 

Not only did markets surge on the influx of Federal Reserve capital and retail investor activity, but electric vehicle companies were generating tremendous attention. With investors across the board adopting ESG (environmental, social, and corporate governance) strategies, stocks involving battery metals or electric vehicles saw increased demand during the pandemic. 

The importance of personal, mental, and physical health has propelled the investing public to keep stronger sentiments in mind regarding their investment decisions, which in turn attracts them to ESG-friendly stocks such as Tesla. 

  • March 2nd, 2020: $148/share 
  • All-time pandemic high – January 26th 2021: $883/share 
  • Today (2021/9/21): $739/share 

Cardiol Therapeutics Inc. ($CRDL) 

Cardiol Therapeutics ($CRDL) is one of those companies that you likely haven’t heard much about unless you are focused on biotech plays. Utilizing the anti-inflammatory powers of the cannabidiol (CBD) molecule, Cardiol created CardiolRxTM, an ultra-pure, high concentration cannabidiol oral formulation being developed for the treatment of acute inflammatory heart disease. It is pharmaceutically produced under cGMP to meet the highest standards for product purity, consistency, and stability, and is THC free (<10 ppm) – ideal for patients who should not, or cannot, take THC. 

This unique drug has been cleared for an FDA Phase II clinical trial in acute myocarditis as well as a Phase II/III outcomes trial in high-risk patients hospitalized with COVID-19.  

With more proof of their products efficacy, FDA clearance on their investigational new drug, and the ongoing pandemic recovery, it is no wonder Cardiol has had quite the year. 

Unlike their peer, GW Pharma, which recently got acquired for US$7 billion, $CRDL is still in its early stages, boasting a market cap of only $220 million. GW produced the first FDA approved plant-derived cannabinoid medicine, Epidiolex, to help treat epilepsy in children, and paved the way for this kind of research to reach the mainstream. 

  • March 2nd, 2020: C$3.11/share 
  • All-time pandemic high September 16th 2021: C$5.44/share 
  • Today (2021/9/21): C$5.10/share 

Well Health Technologies ($WELL) 

Well Health ($WELL) is a Canadian-based, female-founded, emerging plant-based wellness company. Their focus is on formulating, developing, distributing, and selling a variety of supplements, remedies, and other functional wellness products. 

They own and operate the largest single chain network of primary care clinics in B.C., Canada and keep an advanced system of electronic medical records (EMR) to support hundreds of clinics, thousands of doctors, and millions of patients. 

The company is headed by the tech-focused operator and investor Hamed Shahbazi, who has 20 years of experience in the capital markets. Shahbazi previously founded TIO Networks Corp., a company that was listed on the TSX Venture and was eventually acquired by PayPal. 

By merging a modern blend of clinical and digital health care initiatives, $WELL has seen major growth over the course of the pandemic. 

Debuting the market at a valuation well below $100 million, the company sits today at a $1.53 billion market cap. 

  • March 2nd, 2020: C$1.70/share 
  • All-time pandemic high – July 2nd 2021: C$9.84/share 
  • Today (2021/9/21): C$7.50/share 

Are the Pandemic Effects Over? 

As we’ve now seen, the market has fully recovered… and then some. 

The S&P 500 is up 33% since its levels immediately prior to the pandemic. The Dow Jones is up nearly 20% for the same period. 

In the market, where the anticipated annual growth is around 8-10% for these indices, the accelerated rate of growth that occurred is unsettling for some analysts, who have experienced similar heightened growth periods such as that of the dot com boom. 

Retail investing is at an all-time high and IPOs are coming out left-right-and-center. 

The stock market has been fueled with stimulus from the Federal Reserve, and although the markets look fairly healthy, many believe a correction is on the horizon. 

Sectors such as biotech and ESG have received much more attention as a result of the pandemic. Biden has pledged US$2 trillion to climate change and set a goal for the U.S. to achieve net-zero carbon emissions by 2050. Payment processing, DeFi, and communication stocks have been growing (for good reason) as the world of finance and how the world uses money undergoes rapid change. Especially with continuing institutional interest in the world of cryptocurrencies. 

Food stocks, particularly plant-based and functional foods, are growing at a high rate due to the ever-changing landscape of food production. People are starting to re-evaluate all aspects of their food intake and enhance their diets through supplements, such as functional mushrooms and plant-based alternatives. The plant-based sector excels along with ESG investors, as mass production of meat is incredibly environmentally taxing. 

Whether you believe the “mother of all crashes” is coming or think that we are simply due for a mere correction, we know from the past that the market is always going to be okay in the long-term. According to the Motley Fool, the S&P 500 has yielded an average of 10.9% annually over the last 40 years. This includes all market crashes. 

The more you suspect a bear market, the more cash you should keep on hand; not just for protection, but for buying opportunities. 

Keep an eye on stocks that naturally benefit from the pandemic, such as the ones mentioned above, but remember that defensive stocks are great for protection against rough market conditions. The faster a stock is growing, the more likely it will see a significant pullback during a bear market. 

Balance is key! 

Don’t forget to utilize insurance in the form of options. You can learn more about that in our Options Trading for Dummies Pt. 2. 

Happy investing. [/fusion_text][/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]


Disclaimer: Cardiol Therapeutics is a client of Edge Investments and we own shares in the company.

  • Edge Editorial Team

    At Edge Investments, we make investing in small cap stocks enjoyable and edge-ucational. We are here to teach you about investing, keep you up to date on news, and help connect you with companies that you may have a desire to invest in.

    View all posts

Leave a Comment

Get 30+ hours of analyst research directly in your inbox weekly. Sign-up today to stay on top of the market.