Editor's Note: Jon D. Markman writes a weekly column for CNBC on MSN Money that is republished here on

TheStreet.com.

Bird flu sweeps southern China! Bird flu blasts northern Thailand! Bird flu attacks Turkey! Germany finds bird flu! Bulgaria, Romania, Azerbaijan -- bird flu, bird flu, bird flu!

Well, you can say one thing for the threat of an avian influenza pandemic: It does provide a pretty good geography lesson. Maybe we can watch "Where in the World Is Bird Flu?" on PBS from our quarantine bunkers.

But is it really something that investors need to worry about or prepare for?

Among traders, the answer must be an emphatic, if slightly cynical,

yes

. When a poultry disease has a public relations campaign that rivals the best that sneaker companies can muster, speculators have to pay attention. Buying a stock on the basis of rumors of a news event and selling when the event occurs is a tradition on Wall Street as old as fried chicken on the Fourth of July. I'll give you a list of my top 28 bird-flu plays to consider in a moment.

Among long-term investors, the answer has to be more qualified. Avian influenza virus, known by scientists as H5N1, started as a phenomenon of the developing world, where practices of raising fowl in filth among pigs and insects have not changed in hundreds of years. In the West, where chickens are raised by agribusiness in factories optimized for profit, regulation and taste, in that order, the breeding grounds for disease are less fertile.

Overblown, or Armageddon?

The problem is that H5N1, which sounds like a Star Wars character, has jumped into the developed world on the wings of migratory birds. And if somehow it jumps the species barrier into humans, one of three things at the extremes of the scare spectrum will occur:

The whole episode will go down in the annals of overblown global medical fright nights alongside discredited fears of swine flu, anthrax, West Nile virus and SARS.

Drug companies' efforts to create a vaccine or symptom-reducing therapy will work in the nick of time, and quick action by authorities will quarantine victims and isolate the bug before it sickens millions. Pharmaceuticals investors will clean up, and migratory swans will go off the most-wanted list at Interpol.

So many people will be infected and killed that it won't really matter which stocks you own, since international trade will collapse. You'd be better off buying put options on the big indices -- highly leveraged bets against the market -- that will make you rich if there's anyone to collect from once the pandemic ravages Earth.

The Roots of Bird Flu

With that cheery thought, let's dial back a moment to see how the bubble in bird-flu mania emerged.

The tale begins a few decades ago, when rising wealth in Asia began to change eating habits. Chinese farmers in rural areas had long raised both chickens and swine for local consumption, but demand accelerated geometrically once capitalism swelled incomes among urban customers.

Because of their thrift -- and because Asia is largely short of protein for feedstock -- farmers designed tiered animal pens in which birds were kept on a top floor in slatted cages. Their droppings fell to the ground floor, to be consumed by pigs as part of their feedings. Yum.

As swine ate chicken droppings, their biological nature changed over time. Various viruses and bacteria were shared and mutated. And these mutations were carried elsewhere by insects that fed on the blood of both pigs and chickens. The risk of migration away from infected farms has always come primarily from migratory birds, such as geese, that were bitten by the same insects that sipped the blood of caged birds.

The danger of breeding mutated swine and avian diseases is elevated in South Asia, where religious rules protect sick animals from slaughter. Exacerbating the predicament is the combination of warm weather; stagnant pools of water that breed malicious insects; close living quarters among the very poor; and sanitation practices that are, well, Third World.

Tumblers in a Cosmic Lock ... Click

Put it all together, and conditions for the rapid transmission of disease multiply. And for reasons that are somewhat mysterious, about every 50 years or so conditions emerge like tumblers in a cosmic lock to create a ripe environment for the rapid migration of local diseases across international borders, which is the definition of a pandemic.

At the moment, the main thing you have to avoid is chickens that appear to be drowsy, have watery eyes and are stumbling into drugstores asking for Thera-Flu. Just say no. But experts say it's also just a matter of time until the DNA of the virus slips a gear and changes in a way that makes bird-to-human transmission possible.

It's a sort of a Viral Vegas, where physicians are waiting for Red 17 to hit randomly on the roulette wheel and trigger a payout to the dark forces of the human condition. Alarmists say that in a worst-case scenario around 2% of the world's population, or 150 million people, could die of pneumonia, or upper respiratory disease, caused by an H5N1 mutation.

In India this weekend, officials said they were taking the threat seriously. They will cull 900,000 chickens in the Nandurbar district of Maharashtra state, where the virus was detected recently. They're paying farmers up to 40 rupees per fryer, which they then poison and bury in seven-foot graves.

Profiting From the Scare

Over here, conditions are quite different. Poultry factories are gruesome but largely clean. Cities have developed extensive plans for quarantining potential victims.

Don't build a brick bunker in the backyard or buy a lot of canned food just yet. If the bug jumps from birds to humans, there's still no guarantee that it will be any worse than any other flu that races across the world. Indeed, it may be no more harmful than the much-hyped Y2K bug that incited needless panic among investors and politicians in 1999.

Still, those jackals in the media and on Wall Street who are specialists at making mountains out of molehills will certainly try to fan the fear of flu at any opportunity. They will tirelessly remind us that there were three pandemics in the 20th century, with the most severe coming in 1918-19, when 50 million people died, including 625,000 Americans.

The recent lull in really bad H5N1 news is a good time for traders interested in exploiting the prepandemic media campaign to take positions in a list of drug companies that have announced products in their pipeline to either provide a vaccine against the new flu strain or treat its effects.

Most of the bird-flu plays ran up a bunch in the fall and have since traded down to less inflated levels, providing potentially reasonable entries.

Regular flu vaccines made by companies such as

MedImmune

,

Chiron

Sanofi-Aventis

(SNY) - Get Report

and

GlaxoSmithKline

(GSK) - Get Report

are not proven effective against H5N1, but governments are granting billions in research money to these companies and others to accelerate the development of new vaccines.

Even when enterprising lab teams come up with what appears to be an effective therapy, it would not be widely distributed for months. That's because the final vaccine must match the mutating virus before mass-manufacturing begins; only front-line health workers would likely get the first doses.

Since worldwide vaccination is impossible to achieve -- it would require 4 billion doses -- many drugmakers are developing therapies to contain outbreaks and reduce the fatality rate.

The following table lists drugmakers that have announced plans to develop H5N1 vaccines, post-illness therapies or diagnostic tests. They comprise the full range of speculation, so do your own homework before investing: Some may double or triple, while others may go to zero.

At the time of publication, Jon Markman did not own or control shares of companies mentioned in this column.

Jon D. Markman is editor of the independent investment newsletter The Daily Advantage. While Markman cannot provide personalized investment advice or recommendations, he appreciates your feedback;

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