Eagle Health Holdings (ASX: EHH) rallied 18.9% today, on the back of its strategy to profit from fears around a worsening COVID-19 outbreak, before retreating slightly later in the session. The business announced new medical mask production lines in one of their manufacturing facilities and will comply with both Chinese and international regulations. The facility can produce 6,000 masks per hour, equating to ~300m annually, which will almost certainly be used in light of increasing fears around the new coronavirus.
A global shortage of masks, partially off the back of worried consumers stockpiling them, almost guarantees near term demand for the product. Additionally, due to a shortage, prices for masks are significantly higher than usual. The time delay in new supply entering the market enables existing producers of masks to extract margins from production which are much higher than historical norms.
Another reason why the stock is rallying is a separate announcement from Zoono (ASX: ZNO) that their microbe shield is 99.99% effective against the coronavirus. While the microbe shield is only used in hand sanitiser, thus being far less effective than a vaccine or cure for COVID-19, demand is still likely to be strong in the absence of a superior solution.
Eagle Health Holdings has an agreement to manufacture and distribute a hand sanitiser based on Zoono’s technology throughout China. Since the company is likely to see higher than expected earnings as a result of the success of product trials, Eagle rallied significantly in today’s session, despite the general downtrend in equities. Shares in both businesses could also rally off the back of demand from investors who are seeking an alternative avenue to hedge the risks which COVID-19 poses to investment portfolios. Since gold, a typical hedge against volatility, has shown mixed results, investors may seek to profit from the higher margins which Eagle and Zoono can generate as a result of the Coronavirus.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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