Everyday Finance

Forgotten Pharma ETFs May Bounce Back with Swine Flu Fears

I think the whole swine flu issue is another opportunity where perception and fear have diverged from fundamentals so much that investors willing to wait out the churn from newsbites and "shocking" headlines can reap great returns.

The article highlighted the DJ Livestock ETN. This is probably a good opportunity to pick up soon when a reversion to the mean is anticipated. Aside from the fact that as the economy recovers, meat will be back in force on the American plate, regarding swine flu fears, the science dictates that swine flu is not transmitted by eating pork. The fact that many countries have conducted full scale slaughter of all pigs and also, banned exports from the US demonstrates politics over science. Eventually, the market catches up to poor policy and exports/consumption will revert to prior levels.

On the pharma/biotech side, the vast majority of the companies that run up on swine flu prospects will never see a dime in revenue related to their efforts, even if the flu comes back in full force this season. While there are over 20 companies that claim to have a stake in the issue, you'll probably only see a couple biotechs and a couple pharmas with any meaningful impact since ultimately, the govt won't sponsor 19 different vaccine strains and there are only a few large pharmas with the capacity to produce in meaningful volumes. Then, the large pharmas derive such a small portion of profits from low-margin vaccines, that whatever move you've seen to date is probably about it, except for perhaps, a hype trade if the strain becomes more virulent in the fall. But, as a fundamental long-term change in business prospects, not a good "long term investment" IMO.