Last weekend, people across the country were glued to their TV screens, watching with rapt attention as cameras focused on… trucks pulling out of a parking lot.
While in a normal year nothing would sound like less exciting television… context changes everything.
The two trucks were leaving the Pfizer (PFE) facility in Michigan, filled with the country’s first round of COVID-19 vaccines.
The screenshot is destined to become an iconic image in American history—a reminder of the first signs of hope against a virus that stopped the world in its tracks.
While it might be awhile before the vaccine’s full effects are felt throughout the economy… a lot of the future positives have already been priced into the market, thanks to its forward-looking nature. In November, we saw a 10.8% gain, making it one of the best months ever.
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That said, there are still ways for investors to benefit, especially if you’re in the market for the long term. The economic impact of the pandemic will be long-lasting… which means so, too, will the positive impact of the vaccine rollout on the related stocks and sectors.
Last week, I wrote about the inevitable emergency authorization for the Pfizer vaccine… the upcoming approval for the Moderna (MRNA) vaccine… and three of my favorite income plays to benefit from the COVID vaccine news.
Today, I’ll share two exchange-traded funds (ETFs) to buy now that should soar with the rollout.
ETFs are a great way to invest… to play a trend… and to stay diversified… all with just a single trade. Most ETFs are based on indices—just like my first pick for the vaccine rollout, the iShares Transportation Average (IYT).
IYT is based on the Dow Jones Transportation Average Index—it has the same 20 price-weighted components and its price action tracks the index pretty closely.
It’s my choice to play the vaccine rollout because of the unfolding vaccine delivery effort across the country and abroad.
The sheer size of the transportation network needed and the number of leading companies involved, from transport giants UPS and FedEx to the airlines essential in bringing the vaccine to other countries, makes this ETF a perfect choice.
And speaking of the airlines, this sector will reap countless benefits from the vaccine. First, getting COVID under control means more people will be flying again. But it also plays a major role in getting the vaccine where it’s needed in a record time, both on special flights and hundreds of commercial flights. This will create new revenue, allow the pilots to keep flying (not letting their skill rust)—while also making sure underused planes get back into service. All of the above is good news for the airline industry.
The ETF allows us to invest in 20 transportation leaders at once, without trying to pick and choose which one is poised to benefit the most from the process.
Plus, transportation companies are essential for the economy… and the stronger the recovery, the better off they will all be.
If the Dow Transports follow the main index (the Dow Industrials) higher, it would confirm the economy is fundamentally improving. And a better economy will require more goods to be transported across the country, giving an additional boost to the transports’ top and bottom line.
In 2020, the transports outperformed the Dow by a wide margin (15.4% to the Dow Industrial’s 6.1%), although, longer-term, they still have some catching up to do, presenting a long-term buying opportunity.
Additionally, IYT is a low-risk way to invest in the online shopping boom… a boom that requires more and more deliveries. If the ecommerce trend continues as it should, the leading logistics companies—from last-mile delivery leaders like FedEx to long-haulers J.B. Hunt and Landstar System—will continue to benefit, pushing the index and IYT higher.
My second ETF choice for the vaccine rollout hails from the healthcare sector: the Health Care Select Sector SPDR (XLV).
XLV allows us to invest in the companies essential to the vaccine development and distribution efforts. This group includes Pfizer and CVS—which account for 5.1% and 2.2% of the ETF, respectively—and McKesson, a major drug distributor that holds a federal contract to help distribute the COVID vaccine.
And don’t forget about Johnson & Johnson, the largest company in the ETF (9.4% of all assets), whose recombinant COVID vaccine will only require one shot for full immunity–and is likely to have a long shelf life when refrigerated. The vaccine is currently in a late-stage trial and could get before the FDA approval committee by late February.
Somewhat counterintuitively, the healthcare sector will also benefit from a reopened economy.
When the worst is over and our hospitals and ERs return to a more or less normal routine, people who held off from getting medical care will return. It’s an underappreciated trend—given that healthcare facilities are already busy with COVID.
Delaying care is a thing—and this presents extra opportunities for many components of the healthcare sector, from large pharma (29.4% of the ETF) to medical device companies (27.8% of the ETF).
Both ETFs pay a dividend, but as vaccine distribution efforts grow and the economy begins to normalize, I expect most of their return to come from higher prices…
Genia continues to keep readers ahead of the curve… like her January recommendation of Moderna.
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