The $10bn vaccine surprise, dangerous EV stocks, and value trap The $10bn vaccine surprise, dangerous EV stocks, and value trap The $10bn vaccine surprise, dangerous EV stocks, and value trap

The $10bn vaccine surprise, dangerous EV stocks, and value trap

Equities 6 minutes to read
Peter Garnry

Head of Equity Strategy

Summary:  In today's equity update we focus on the EU has announcement that it expects to spend $10bn on Covid-19 vaccines which will benefit companies such as Pfizer and BioNTech. We also put out a warning on EV stocks which have gone bonanza lately defying any logic and exposes investors to a potential violent correction when the speculative flow changes. Value stocks were the big thing when the Covid-19 vaccine was announced with rates going higher, but the entire trade has reversed again likely wrongfooting many investors. As long as the US 10-year yield stays below 1% we advise investors to hold the powder dry for the value stocks rotation. Finally, we take a look at global equities and valuation, and why we are positive on emerging markets.

It has been a quiet week with the market pausing after the positive response to the Covid-19 vaccine announcements. The two most interest stories in equities this week are Nvidia and Workday both indicating a slowdown in technology spending by enterprises as Covid-19 uncertainty is beginning to impact business decisions in this part economy. The other important story came today with news that EU could pay as much as $10bn for vaccines against Covid-19. Judging from analyst expectations we can see that BioNTech (BNTX:xnas), the partner with Pfizer, stands to benefit the most from the vaccine with revenue expected to increase to €5.3bn in 2021 up from €449mn in 2020 with expectations of free cash flow in 2021 of €3bn which is a high number relative to the current enterprise value of €18.3bn. But this high forward free cash flow yield reflects an unknown future past the Covid-19 vaccine for BioNTech. Because will there we a recurrent need for the vaccine or is so effective that Covid-19 will be completely eradicated.

Source: Bloomberg

There will be a day of reckoning in EV stocks

As we talked about in today’s podcast, electric vehicle stocks are gaining momentum again in what has been a sheer bonanza in the past couple of weeks. This part of the equity market is driven clearly by speculative behaviour and an overweight of retail investors that are not looking at valuations. To give an idea of the speculative nature look at a small EV company called ElectraMeccanica, which makes three-wheeled electric vehicles, which has seen its shares up by 286% in only three weeks. The company is worth $675mn and is not expected to reach more than $100mn in revenue until 2023. This is the type of discounting the market has not seen since the dot-com days and should be a clear warning signal to investors. There is a lot of speculation that the incoming Biden administration will increase the EV tax credits increasing the incentive for purchasing EVs. While we are bullish on the green transformation theme over the coming decade this part of the theme is clearly getting overvalued and we think investors should think about reducing positions in EV stocks as an ugly correction is overdue.

Source: Bloomberg

Value trap once again?

It should have been the big rotation when rates were rising following the Covid-19 vaccine, but as we said repeatedly on our podcast it could become a false breakout and so far our hesitance against value stocks has been right. Value stocks are right highly correlated to interest rates and thus value stocks are a play on economic growth and potentially higher inflation. It is not a bad trade for 2021, maybe second half, but investors must be patient. It is not certain that value stocks will outperform growth stocks by a lot just because rates go up. Growth stocks are still compounding earnings at a much higher level and thus even with modestly higher rates they could continue to outperform value stocks. We will not tactically be positive on value stocks until the 10-year yield is above 1%.

We are positive on equities in 2021

On a higher macro level, earnings expectations for next year are slowly coming higher and we remain constructive that equities will deliver a strong positive return in 2021. With the free cash flow yield at 5.9% in the MSCI World Index equities are attractively valued against bonds. The main risk to an equity rally next year is an economic slowdown, but we put that risk at a low probability as we believe governments and central banks will continue to provide stimulus, and especially China will ease financial conditions in the new year in a response to what seems to be too tight financial conditions which means that emerging market equities will likely do quite well 2021.

Source: Bloomberg

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (
- Analysis Disclaimer (
- Notification on Non-Independent Investment Research (

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.