Where at first the spread of the corona virus looked minor, the virus has now reached all provinces of China. The amount of people infected continues to rise and is most certainly higher than the reports suggest. In Wuhan not even all sick people can get tested anymore and only patients with the most need of care get help. And even if all sick people could get tested, several reports suggest the virus can already be spread during the incubation period. This very alarming message means that people can unknowingly infect others without being sick yet. New reports based on the first infections suggest an incubation period of 4-7 days. The Imperial College London estimates that, on average, each case infected 2.6 others with uncertainty ranging from 1.5 to 3.5. This implies that control measures need to block well over 60% of transmission to be effective in controlling the outbreak.
The Golden Investor is very critical on the way China is governed, but a totalitarian state like China does not have western bureaucracy problems when taking measures. Hospitals are being built, multiple cities are on full lockdown and people stay away from the streets, however it looks like further spread is inevitable. The Chinese New Year gatherings will only accelerate the spread and it will be very interesting to see how many people will become infected the coming days. A Hong-Kong expert even says that the amount of people infected is going to double every six days. The graph below based on early estimates by the Imperial College London doesn’t look very comforting.
Several biotech stocks have been thriving on the news. The Golden Investor does not like these kind of speculative investments on biotech stocks. Some of these stocks have not even started human clinical trials on their products yet but still have been skyrocketing. Investing in these kind of biotech stocks now is a very risky investment, because those stocks don’t have intrinsic value beyond speculations. Manufacturers of protective gear against the spread of infections have also been thriving, although these stocks are undoubtedly overbought too at the moment, these stocks do have physical sales increasing at an unknown rate. Chinese people are very used to wear protective gear, even when having normal fevers and colds Chinese wear face masks. With the spread accelerating and officials suggesting a possible mutation of the virus the sales of these caps will rise. Online prices of protective gear have gone through the roof. At current levels the stock price of these manufacturers is still far below to the prices when MERS and Ebola hit the news.
Alpha Pro Tech Ltd (APT) is one of these manufacturers and a relative a small cap stock of around thirty million dollars before the corona virus spread, this stock has risen over 150% at the time of writing. Previous virus spreads suggest a potential further rise of the stock could throw this stock as high as 500% higher. Now it seems this spread is bigger than other outbreaks ever suggesting even higher price could be reached. The Golden Investor normally does not do these kind of speculative trades but looking at the numbers and predictions the continuing spread is imminent. According to several reports the Chinese government has starting buying up protective gear in other countries at high rates to prevent the virus from spreading, this will only boost Alpha Pro Tech stock up more. Alpha Pro Tech’s balance sheet looks decent, so no sudden public offerings diluting the stock price can be expected soon. And with other investments diving in the red, this is a perfect short term speculative hedge.
Disclaimer: The writer of this article holds Alpha Pro Tech (APT) stock, this article should not be interpreted as investment advice or anything like that.
1) Imai, N., Cori, A., Dorigatti, I., Baguelin, M., Donnelly, C. A., Riley, S., & Neil, M. (2019). Report 3 : Transmissibility of 2019-nCoV. 2–6.