Speculation over the severity of the swine flu outbreak has pushed drugmakers higher and punished travel and tourism stocks, although market analysts warn that traders must exercise caution when trying to trade these names as the drama plays out.

If you haven't seen a television or a newspaper in the last few days, swine flu is the primary topic of conversation. This new strain, a combination of pig, bird and human viruses that people may have no natural immunity to, is causing a hysteria around the globe.

Already, the World Health Organization said it may be too late to contain the virus, prompting the agency to raise its alert level to phase 4 out of 6, meaning the flu spreads easily but is not yet a pandemic.

Mexico is suspected to be ground zero of the outbreak, where the total number of deaths believed to caused by the outbreak rose by 50% on Monday to 152. There have been confirmed cases in the U.S., Canada, Spain, the U.K., Israel and New Zealand, with more suspected cases in Brazil, France, Australia, South Korea and Switzerland, according to the WHO.

For investors, there are many opportunities in stocks that benefit from outbreaks such as this. A moral problem comes into play, however. For instance, it seems inherently wrong to root for a global pandemic in order to make a few bucks.

The other problem is that investors mustn't forget how trades like these have played out amid similar conditions in the past. Like previous outbreaks that have resulted in peaks and valleys for stocks, every investor trading on the swine flu headlines should remember that as the hysteria dies down, so could share prices of speculative names.

Big Bets on Small Names

Several top biotech companies have rallied thanks to having approved drug treatments. Roche's Tamiflu and GlaxoSmithKline's ( GSK) Relenza immediately come to mind. Gilead Sciences ( GILD) has also risen as it gets royalty payments from Roche for Tamiflu.

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