From the perspective of investing on narratives, Clovis Oncology (NASDAQ:CLVS) seems to represent an ideal contrarian investment, perhaps even one of the better ones given its “cheap” price tag. After all, that’s what moves markets these days, isn’t it? Seriously, though, sentiment should rise for CLVS stock as novel coronavirus cases decline, yet it seems to have a direct correlation with Covid-19. What gives?
First, let’s discuss the reason why many investors believe in potential upside for CLVS stock. Obviously, you have a compelling oncological pipeline.
For me, rucaparib stands out not only for its application toward ovarian and prostate cancer but also because its therapeutic power is delivered via oral tablets. That’s more palatable (literally and figuratively) than many other cancer treatments which frankly come off as barbaric.
But beyond the science, you have broader societal developments. Back when the coronavirus upturned our paradigm, the last thing anyone wanted to do was to visit the hospital or any healthcare clinic. Unless you were truly dying or facing a debilitating condition, you were better off riding out the storm. With the healthcare infrastructure flooded with Covid-19 cases, it wasn’t a great time for cancer patients.
Therefore, it wasn’t terribly surprising that CLVS stock began slowly giving up those gains following a rebound from last year’s March doldrums. Sentiment seemed to align with the ebb and flow of coronavirus cases in the U.S., as we lurched from one spike in infections to another bigger one.
However, after avoiding what many feared would be a superspreader event in the form of Super Bowl parties held throughout the country, Covid-19 cases have veritably plummeted. I don’t want to jinx this like a broadcaster mentioning accuracy statistics right before the kicker attempts a field goal, but the signs look good, let me just say that.
Economic Impact Might Hurt CLVS Stock
So, the big question is, did anyone send the memo to CLVS stock? Yes, on a year-to-date basis, Clovis shares are up nearly 13%, but momentum has cratered more recently. As a perfect illustration, CLVS is down more than 47% over the trailing month.
On paper, CLVS stock seems irrational. From the latest count, new daily Covid-19 cases tally just under 42,000. That pales in comparison to the 300,000-plus that we saw during the early January 2021 peak.
Moreover, we’re hearing stories about aggressive strains of the SARS-CoV-2 virus. Please hear me out – I don’t think we should ignore that considering how much damage has been inflicted by not taking this crisis seriously. But so far – fingers crossed – we seem to be handling this pandemic very well.
That’s a near-perfect setup for a triumphant recovery of CLVS stock, right? You would think so. Unfortunately, the coronavirus isn’t just a health crisis but an economic one. And here’s where the narrative gets tricky for Clovis.
According to Kaiser Health News, the valuation of the stock market wasn’t the only thing that plummeted during the Great Recession. Cancer rates also declined, which raised eyebrows. Superficially, this seemed like a welcome development. However, “People who lost their incomes or health insurance during that time were less likely to get routine screenings or visit the doctor.” And that translates to fewer diagnoses, artificially skewing case numbers.
Hence, CLVS stock may be facing an even bigger headwind than the pandemic imposed. Let’s look at it this way – if all we were worried about was Covid-19, Clovis presents an easy contrarian buy case. Just wait for the virus to die down or for a vaccine to “starve” it out and we’re done.
However, the economic struggle is the real long-term Covid symptom. Without access to steady jobs – particularly good jobs with benefits – millions are at risk of losing healthcare insurance. That poses serious concerns not just for CLVS stock but for similar oncology/chronic-disease investments.
Clovis as a Sentiment Indicator
Now, the following is my theory and mine alone. So please – no criticisms about journalistic integrity. I’ve already declared upfront that this is an editorial.
I believe that CLVS stock represents one of many de-facto sentiment indicators. If we really believed that society can return to normal, investors should be bidding up Clovis shares like crazy. That could still happen so I’m not suggesting that CLVS is a short play. But the overly negative trading is a serious distraction.
Also, I think that the smart money is pulling out of CLVS and other oncology investments. Yes, money has moved into many stocks because of the supposedly positive implications of the latest Covid relief package.
But look – even if the Biden administration delivers the package (which includes $1,400 direct payments), what is that going to do for the millions who desperately need it? In my part of town, $1,400 doesn’t get you very far. And that’s probably why the smart money are exiting the stage.
Yeah, Covid-19 cases are declining and will hopefully stay that way, but the real crisis is only beginning. Fundamentally, you should stay on the sidelines with CLVS stock until we get a better read.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.