The Masked Stocks: Meeting Customer Demand for Outsized Short-Term Gains

Like every crisis, the current coronavirus outbreak has highlighted shortcomings in global supply chains, as well as confirmed again that companies meeting customer demands in the most efficient manner generally prosper.

Professional face masks that are fitted to each individual wearer offer strong protection against airborne pathogens. However, generic face masks available at general retailers, pharmacies and home improvement stores might not offer any significant level of protection from the coronavirus or any other viral agents. Nevertheless, the lack of full protection offered by these masks is completely irrelevant.

The generic masks certainly offer some level of protection. Which is why demand has skyrocketed with the expansion of the current outbreak. The most significant driver behind the increased demand is the uncertainty related to the coronavirus. The common flu causes tens of thousands of fatalities each year. However, the dozens of flu viruses have been around for a long time and we have developed preventive vaccines and methods of getting through such infections.

Without a vaccine currently available, the coronavirus is triggering panic responses in the general population. One of these responses manifests as the increased demand for generic face masks. Driven by that demand, the few United-States-based mask manufacturers saw their share prices surge this week.

Lakeland Industries, Inc. (NASDAQ:LAKE) gained more than one third of its value when the share price advanced from less than $15 on Monday morning to just pennies below $20 when the markets closed at the end of trading on Thursday. Driven by frantic buying, the share price surged above $27.50 in the first 30 minutes of trading on Friday morning. However, once most of the strong buyers cleared, the share price dropped back and has been trading at $19.75 as of noon on February 28, 2020. At that level, the share price has advanced 34.4% week-to-date.

While Lakeland’s gain of nearly 35% is certainly impressive, Alpha Pro Tech, Ltd. (NYSE:APT)  followed a similar trading pattern but performed even better this week. Beginning the week from $6.37, Alpha Pro Tech’s share price tripled by the end of trading on Thursday. Like Lakeland’s share price, Alpha Pro Tech stock surged in early trading on Friday morning. After briefly topping $42 around 10 a.m., the share price gave back half of its peak value and continued to trade around the $20 level as of noon on Friday. Despite the small pullback, at the current $20 share price level, Alpha Pro Tech’s total gain for the week exceeds 200%.

While face masks account for only a small fraction of the company’s production, the sheer volume of its market share warrants the inclusion of the 3M Company (NYSE:MMM) on this list. However, 3M’s significant share of the overall face masks market, accounts for only a fraction of the company’s own overall product mix and revenue.

Therefore, while a significant player in the face masks market, that demand did not translate into share price gains for 3M this week. Negative effects of the company’s exposure to global markets in terms of revenue sources and supply chain actually pushed the share price lower.

After trading sideways on Monday, the share price declined nearly 4% on Tuesday. Accompanied by substantial volatility, 3M’s share price spiked to show temporary gains for the week mid-day Thursday and in the first hour of trading on Friday morning, which was characteristic for all three of these stocks. However, by noon on Friday, 3M’s share price dropped back to just slightly above its low level for the week from Tuesday and traded around $148, which represents a week-to-date pullback of 3.3%.

However, the biggest gainer in this space so far this week has been Allied Healthcare Products, Inc. (NASDAQ:AHPI). Headquartered in St. Louis, Missouri, Allied Healthcare Products manufactures and markets respiratory products for medical use. Unlike the three companies mentioned above that offer basic face masks through common retail outlets, Allied Healthcare Products offers high grade respiratory protection products and systems to health care and professional entities. These establishments include hospitals, hospital equipment dealers, hospital construction contractors, home health care dealers, emergency medical products dealers and more.

For the first three days of this week, the share price traded relatively flat mostly between $3 and $4. However, the share price surged to more than $15.50 by the end of trading on Thursday. Following a similar trend like the three stocks above, Allied Healthcare Products’ share price spiked to more than $42 in early trading. However, the stock gave back almost all those gains and dropped into the $16 range by noon. After reversing trend, the share price advanced higher and broke back above $22 before 2 p.m. At that level, the Allied Healthcare Products’ share price gains have exceeded 680% so far this week.

The movement of these stocks this week is also representative of their individual performances for the trailing 12-month period. With a market capitalization of nearly $85 billion, 3M is the only large-cap stock among the equities mentioned here. Therefore, the demand that affected a very small share of the company’s vast product portfolio had very little impact on the stock’s overall performance.

Alternatively, the other three stocks have a combined market capitalization of approximately $550 million. Therefore, the spike in demand for what is the core of their product portfolio had a significant positive effect on the share prices of these equities. However, the downside of the greater reliance on products in a single market segment is that a demand decline in that sector also can trigger a significant share price pullback in a short period.

Alternatively, a highly diversified company with a large market capitalization can weather market fluctuations by offsetting a demand decline in one segment with a steady or rising demand in other segments. Furthermore, as a large and established company, 3M currently pays a dividend that yields nearly 4% and has boosted its annual dividend payout for the past 61 consecutive years. Investors must be aware that the immediate advantage of these smaller companies, which resulted in outsized short-term gains this week, can be a hindrance over a very long time horizon. Therefore, individual investors must continuously monitor and analyze markets for investment growth opportunities, as well as make sure to balance their portfolio with equities that deliver reliable gains for long-term wealth protection.

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.