3 'Pick & Shovel' Stock Plays in Covid Vaccine Development

It's a well-known adage that the best investments during the 1850s California Gold Rush were the pick and shovel makers that provided products to all miners. Here, a trio of contributors to MoneyShow.com apply this concept to companies with products and services that might benefit regardless of which specific Covid-19 vaccine eventually proves successful. Eddy Elfenbein, Growth Stock Advisor Investors are chasing every company that's developing a promising coronavirus vaccine. I prefer instead to look for companies that supply what I call coronavirus infrastructure. These companies will be winners no matter which companies develop a successful vaccine. Many of the leading vaccine candidates need very cold temperatures to remain viable. And because regular glass often cracks in extreme cold temperatures, special glass vials will need to be manufactured that will hold the vaccine. At the moment, there is a massive shortage of the glass vials used to bottle vaccines. Everyone from Bill Gates to vaccine manufacturer CEOs warned about this many months ago. That's why the U.S. government turned to the 169-year old glassmaker Corning . The firm signed a $204 million deal to create millions more of its pharmaceutical-grade Valor glass vials for the government. Corning's Pyrex glass was used to bottle polio vaccines in the 1950s. Over the course of a decade, Corning researchers experimented with more than 200 different glass compositions before landing on the one that became Valor. The company claims that the resulting aluminosilicate glass is about 10 times stronger than conventional vials. Valor glass is made without boron. This common ingredient found in conventional glass can lead to contamination, which would be a disaster. The glass is also more chemically durable on the inside to avoid delamination (glass flakes), and features an external coating that reduces friction so vials can slide past each other at high speeds with less chance of jamming together or breaking. And most exciting of all, this Valor glass can withstand even the low temperatures required by the Moderna and the vaccine being developed by Pfizer and BioNTech . Among other things, this all translates to minimized breakage-related delivery delays. The Biomedical Advanced Research and Development Authority (BARDA) has tasked Corning to increase capacity for this glass by ten times over the next three years. Corning says it is on track to start producing hundreds of millions of glass vials in 2021. Of course, there is a lot more to Corning than glass vials for the pharmaceutical industry. The company is a leading producer of optical fibers, glass substrates for liquid-crystal display panels, and specialty glass and ceramic materials used in a variety of applications. Corning's top-notch manufacturing processes and dominance in latest-generation glass technologies have propelled it to control a majority share of the glass panel market. This dominant position allows the company to maintain high profit margins in an industry with steady price declines. The company also enjoys significant growth in its optical fiber business, as 5G continues to roll out. Think WiFi, online gaming, video streaming, and even Zoom videoconferences. And there is growth in Corning's specialty materials segment as the company expands its leadership position in smartphones with dual-sided glass (Gorilla Glass) and continues to grow in the wearables market. Finally, Corning's environmental ceramics business is benefiting from more stringent emissions regulations in Europe and China, resulting in continued demand for its filter product that is used in vehicles. I like the fact that Corning expects sales growth in low-teen percentages in the third quarter versus Wall Street's expectations of single-digit growth. Add in a recent yield of 2.78% and you have a nice stock that should show steady appreciation -- especially now with soaring demand for its Valor pharmaceutical glass. Buy at any price up to $35 a share. David Toung, Argus Research We are reiterating our buy rating on Catalent , a manufacturing and development partner for biotech and pharmaceutical companies. Catalent has become a key collaborator for companies working on vaccines and therapies for Covid-19, including three of the leading vaccine developers. The company is working with Oxford and AstraZeneca , Johnson & Johnson , and Moderna . Reflecting its substantial manufacturing capacity and expertise, Catalent has been awarded work in more than 50 programs related to Covid-19. In January 2020, the company acquired a facility in Italy that expands manufacturing capacity for biologic and sterile medicines and oral solid dose products. The facility will also help Catalent to better serve the European market. It has scaled up two dedicated production lines to produce vials for the Covid-19 vaccine candidates being developed by AstraZeneca and J&J. In February, Catalent acquired MaSTherCell Global Inc., providing expanded capacity for developing and manufacturing cell and gene therapy products. MaSTherCell has facilities in Gosselies, Belgium and Houston, Texas. Catalent's expansion efforts also include adding capacity at existing manufacturing sites. Its Harmans commercial scale facility meets the standards of CGMP (current good manufacturing practice). This facility was recently approved by the FDA to produce commercial drug substance for AveXis' gene therapy product for spinal muscular atrophy. This was a significant milestone, as the Harmans facility became the first CDMO (contract development and manufacturing organization) to be approved by the FDA for commercial gene therapy production. The Harmans facility is being scaled up to enable multiple production lines to run in parallel, and will produce drug substance for the Oxford/AstraZeneca vaccine candidate. The company is also expanding capacity at its Bloomington, Indiana facility, which will provide vial filling and packaging capacity for Moderna's vaccine candidate. It will also support the production of an initial 100 million doses of the vaccine for the U.S. market if it receives approval. Catalent should have an opportunity to significantly expand its agreement with Moderna. The company issued new guidance for fiscal year 21 (ending June). It expects revenue of $3.45 billion-$3.60 billion, representing annual growth of 12%-16%, and adjusted net income of $390 million-$435 million, representing growth of 11%-24%. It also expects adjusted EBITDA of $840 million-$890 million, implying growth of 12%-19%. Based on the company's strong fourth quarter fiscal 2020 performance and the strength of its Covid-19 and cell and gene therapy programs, we are raising our FY 21 adjusted EPS estimate to $2.36 from $2.15. For FY 22, we are establishing a new estimate of $2.77. Our five-year EPS growth rate forecast is 12%. We are raising our target price to $110. We believe that the stock merits a premium valuation based on its large addressable market in manufacturing vaccines and other biologic drugs, its ability to gain and expand manufacturing agreements with Covid-19 vaccine developers, and its strong long-term growth prospects. Richard Moroney, Dow Theory Forecasts Charles River Laboratories may not be a household name, but it flows through all facets of the pharmaceutical industry. The company was involved in the development of about 85% of all drugs approved by the U.S. Food and Drug Administration last year. So it comes as no surprise that Charles River, a provider of contract research, plays a major role in the efforts of dozens of drugmakers to develop vaccines and treatments for the coronavirus. The pandemic has had a mixed effect on Charles River, driving many clients to shut down laboratories and idle clinical trials. However, the near term outlook is brightening, as customers reopen their research facilities faster than expected. Charles River said demand picked up substantially in June, as research activity in general and drug development in particular gained momentum. The crisis has opened some encouraging doors. * Charles River managed to keep all of its labs open, grabbing share from out-of-action competitors. * Clients have been outsourcing to Charles River work they previously performed in-house. * The company expects to retain a meaningful amount of the recently gained business, in part because some firms that used to do their own research will keep outsourcing, and in part because some firms that used multiple providers will opt to stick with a larger partner who can satisfy more of their research needs in one place. Recent acquisitions have broadened Charles River's portfolio of services, including cell therapy and manufacturing. While the company entered a number of new markets in recent years, mostly via acquisitions, it still specializes in preclinical research. Most of the largest competitors focus on human clinical trials, leaving Charles River as the strongest player in many of its markets. In August, Charles River purchased Cellero for $38 million. This business will combine with HemaCare, acquired for $380 million in January, to provide biomaterials for cell therapy research. Charles River says acquisitions remain its preferred use for capital, and that many candidates are available. Expect more deals in the future, likely niche purchases that round out product lines or provide footholds in new markets. June-quarter earnings per share topped the consensus by 24%, as Charles River's earnings fell 3%, much better than its earlier projection of a 20% to 30% decline. In response, the company raised its full-year sales and profit targets, and analysts followed their lead. The consensus now calls for growth of 9% in sales and 8% in per-share profits this year despite an estimated loss of $100 million in revenue from the coronavirus. Charles River recently traded at 30 times trailing earnings, pricey relative to the broad market but 13% below the median for life-sciences stocks and 16% below its own three-year average. The stock is rated a Long-Term Buy.

3 'Pick & Shovel' Stock Plays in Covid Vaccine Development

Investors are chasing every name that's developing a promising coronavirus vaccine. These stocks will be winners no matter which companies are successful.

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