UK Edition
Down, up, down again: the stock market, like the rest of us, doesn’t know how to react to the omicron variant. The FTSE 100 index fell by more than 3pc on Friday, when the news emerged, recovered some of its losses on Monday, then fell again yesterday. It now stands 3.4pc below its close on Thursday last week.
What should readers do? Sell everything on the basis that the market is being slow to cotton on to the danger, rather as it was in February last year, when it needed the virus’s arrival in Europe to make investors take notice? Sell certain stocks and buy others in an attempt to exploit the market’s well documented inability to respond to sudden, dramatic events on a rational stock-by-stock basis?
Buy the market as a whole, via a tracker fund, in the hope that it has overreacted? Or do nothing?
Regular readers will not be surprised to hear that we incline towards the last option. We certainly don’t advise a wholesale exit from the markets. As we said in February last year, just after the Covid crash began, we had no way to know that the virus would cause such disruption so quickly and in every corner of the world.
It was, according to the information we had then, also possible that the outbreak would fizzle out, as earlier ones of viruses such as Mers and Sars had done, and that markets would quickly recover.
Those who sold everything in the expectation that they would be able to buy back in more cheaply would face the disagreeable task of forcing themselves to do so at higher prices, and the natural urge to put off that task would in all likelihood only worsen the financial pain.
Selective buying and selling makes sense in theory but requires careful scrutiny of the reactions of individual share prices and the degree to which the fundamentals of the business are reflected, or overlooked, in those share price moves.
For private investors who have established a portfolio of stocks that they intend to form the bedrock of their long-term savings and have chosen strong, durable companies, there is almost certainly no need to make changes.
All that said, one opportunity does stand out to this column. While the share prices of some vaccine makers have shot up in the past few days – BioNTech has gained 14pc since before news of omicron and 54pc since our advice to hold three weeks ago, while Moderna, which we frustratingly advised readers to sell in January, is 27pc to the good since news of omicron – AstraZeneca has only continued a losing streak that began with the publication of its third-quarter results earlier this month.
Its shares are 12pc lower than before those results and 2.7pc below last Thursday’s close.
It’s hard to see a good reason other than a temptation on the part of some shareholders to bank profits after a very strong run: the shares at their peak on the eve of the results were almost 40pc higher than this year’s low point reached in March.
If anything, the new variant should be good news for all vaccine makers, even if a tweaked version may be needed, especially as Astra has said it will start to make a modest profit from its jabs.
In any event, Astra’s real value is found in its pipeline of new drugs and its formidable research capabilities. As we quoted one fund manager as saying when we last covered the stock earlier this month, “the company’s growth outlook is based on innovation across a number of products and therapeutic categories, which allows for a diversity of growth drivers and low concentration risk”.
More pertinently, he said that even then, when the shares stood 11pc higher than now, they did not look overvalued because their seemingly full price-to-earnings ratio was offset by the strong growth rate expected over the next few years.
“We forecast earnings growth of more than 20pc a year, compared with a peer group average of less than 10pc. This is despite a p/e ratio that is only modestly above the group average,” said the investor, Trevor Polischuk of OrbiMed, a specialist healthcare investment firm.
We said then that readers might want to wait for a chance to buy Astra more cheaply. Now they can.
Questor says: buy
Ticker: AZN
Share price at close: £82.76
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