Small-cap Coronavirus Stocks Perform in Face of COVID-19

Biotech Investing

Major life science companies are working to address COVID-19, but what are small-cap coronavirus stocks doing in the wake of the virus?

The coronavirus pandemic has put a strain on global economies as the world attempts to face the immense fallout of the event and its ever-increasing death toll.

Amid the uncertainty caused by daily COVID-19 case reports and future projections from top medical figures, many investors have turned their attention to companies that may be on the right side of the equation when it comes to dealing with this major outbreak.

While big-name companies are doing their share to treat the virus, some small-cap coronavirus stocks have also been highlighted by experts as worth watching in the fight against COVID-19. Here’s a look at some successes in the small-cap space so far and an overview of why more gains may still be coming.

Small-cap coronavirus stocks embrace testing

As a result of the pandemic, some smaller firms have seen gigantic leaps as their areas of interest become critical. One such surge took place in April, several months after COVID-19 began to spread, when SCWorx (NASDAQ:WORX) had an otherworldly jump of over 400 percent.

According to Business Insider, the huge increase was related to a massive purchase order for COVID-19 rapid-testing kits that the healthcare logistics company received from Rethink My Healthcare.

In a statement, SCWorx CEO Marc Schessel said the purchase order would increase the availability of testing kits across the US. “Widespread testing for COVID-19 disease in the United States is absolutely critical for saving lives and reopening our economy,” he said.

The company has not been trading since mid-April due to not filing its 10-K form for the 2019 fiscal year in accordance with exchange regulations. In its most recent update to investors, issued on July 9, SCWorx said it has submitted additional answers to exchange regulators and is now awaiting their response.

Canadian companies have also experienced upward momentum related to the distribution of test kits. In May, Datametrex AI (TSXV:DM,OTCQB:DTMXF), which is up 700 percent year-to-date, announced the receipt of a critical approval for its test kit from Canada’s top medical authority.

“These are the type of test kits that Health Canada has prioritized as being their preferred kit because of the nature of the testing at 20-minute turnaround,” Jeff Steves, co-founder of the firm, told Global News. “(That) is key because that will allow you to keep people out of the health care infrastructure.”

Health Canada tracks the companies it has approved for COVID-19 testing kits, and so far a collection of private and public names are included.

Can small-cap coronavirus stocks compete with big names?

It’s clear that small-cap coronavirus stocks are making moves to counteract COVID-19, but as larger firms get closer to finding a vaccine, will those on the smaller end of the scale continue to perform?

A small-cap investor who’s seen success during the ongoing coronavirus outbreak said he believes small-cap stocks will have their day in the sun. In an interview with CityWire, Nick Ford, manager of the LF Miton US Smaller Companies Fund, said this:

“Historically, small companies underperform for a number of years and towards the end of an economic cycle, as investors worry about recession but in the through of the downturn the small companies asset class normally starts to outperform and we would argue that if we’re not at that point we’re close to that point now.”

Ford’s fund, whose benchmark is the Russell 2000 Index (INDEXRUSSELL:RUT), has seen success during this time of crisis thanks to its exposure to emergency software company Everbridge (NASDAQ:EVBG) and to Teladoc Health (NYSE:TDOC), a direct-to-consumer telehealth virtual provider.

The Russell 2000, which follows about 2,000 different companies, was created in 1984 as a way to compare and contrast the smaller names within the larger Russell 3000 Index (INDEXRUSSELL:RUA).

While both Everbridge and Teladoc have market caps worth billions of dollars, Ford’s belief in an upcoming small-cap recovery has him looking for companies with year-on-year revenue growth of between 20 and 30 percent.

“We find that if a company can consistently grow its top line 20% to 30% and hold its value then you can expect 20% to 25% returns annually over time,” he said.

More opportunities for small-cap coronavirus stocks

Large biotech and pharma companies continue to race for a coronavirus vaccine, but small-cap players are doing their part to combat the virus as well — and some have impressive gains to prove it.

For those looking to invest in companies looking for a vaccine or aiming to address COVID-19 in another way, there is still time to get into the market, and now may be the time given continued global unrest.

Pattie Lovett-Reid, CTV News’ chief financial commentator, recently said investors will have to evaluate the quality of portfolios when it comes to risk tolerance.

“The markets are going to be very volatile. Markets do not like uncertainty, that’s for sure, and we certainly have uncertainty,” Lovett-Reid said.

Don’t forget to follow us @INN_LifeScience for real-time news updates.

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: Datametrex AI is a client of the Investing News Network. This article is not paid-for content.

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