As news of rising Zika infections strike fear and anxiety among Americans, savvy investors see opportunity. Many are quietly plunking down cash into companies that are offering products to prevent, diagnose and, in some cases, wipe out the virus. But investors should scrutinize valuations and risks carefully as some companies offer potentially bigger windfalls than others.
Spectrum Brands Holdings (SPB) , which makes mosquito repellent sprays, is among those that could potentially benefit from the viral outbreak. With Americans slathering on bug-spray whenever they go outdoors and retailers scrambling to meet the surge in demand, there's little doubt bug-spray makers will cash in. However, experts say this product represents such a small part of Spectrum's total revenue that even if its bug-spray sales rose ten-fold, it wouldn't lift the company's earnings per share much. "No one product accounts for more than 2% of the company's revenue," said one analyst, who did not wish to be named.
Still, the company has benefited "from heightened consumer awareness of the Zika virus," said Bill Schmitz, a research analyst at Deutsche Bank, in a note. Indeed, Spectrum's shares recently surged to a 52-week high of $133.47 from their low of $87.65 set in January. But they could still go higher: Schmitz has a 12-month price target on the stock of $140.
One of the biggest potential beneficiaries of the Zika scare is Intrexon Corp. (XON) , whose Oxitec unit makes genetically modified mosquitoes that could kill off the mosquitoes that carry the Zika virus. The modified insects have been successful in trials done in Piracicaba, Brazil in the past year. "They've had a 90%-plus efficacy in the first six to nine months of eradication," said Ryan MacDonald, a senior analyst at Wunderlich Securities. Plans are now in the works to conduct an FDA-related trial in the Florida Keys.