Is it Time to Dump Your Shares of Moderna?

Key Points

• Moderna became a household name during the pandemic because of its leading-edge technology.

• Investors, as is often the case, extended a positive trend too far into the future.

• The company's story isn't much different today, but the stock trades down over 90% from its post-pandemic peak.

• 10 stocks we like better than Moderna ›

Although you may not exactly understand what Moderna (NASDAQ: MRNA) does, you probably know the company's name, given its involvement in the coronavirus pandemic. The messenger RNA technology, or mRNA, the company uses to produce medicines is exciting, and it helped fast-track a working vaccine to fight back against COVID-19. But its success there doesn't necessarily mean you want to hold on to the stock.

Here are five important considerations if you are thinking about Moderna as an investment.

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1. The core story hasn't changed for Moderna

The main reason to buy Moderna is its use of mRNA technology to develop novel medicines. Messenger RNA is extremely complex, but it allows for the rapid development of lifesaving new drugs. The big proof point of this was the coronavirus vaccine that Moderna helped create during the pandemic. And that's just one example of what this healthcare company has done and can do.

Image source: Getty Images.

One good reason to own the stock is that you believe its mRNA technology can help the world become a healthier place over the long term. That and the fact that you think the company will make a lot of money along the way.

The issue here, however, is that even if you still believe in the long-term investment thesis, there's a problem with the Moderna story.

2. Wall Street hype does it again

The graph below is a perfect example of what investors do over and over again with exciting investment stories. In this case, there was great news for Moderna (an effective vaccine as proof of mRNA success) that investors extrapolated too far into the future. When the good news about mRNA developments couldn't keep up with Wall Street's inflated expectations, investors moved on to other ideas. It's a shockingly typical pattern.

To put the story into context here, COVID-19 hits, Moderna helps the pharmaceutical industry quickly develop a vaccine, and investors buy the stock thinking the sky is the limit for mRNA -- and Moderna in particular -- in the face of a global health crisis. When COVID-19's worst effects were eventually brought under control, signs appeared that investors had priced too much good news into the stock, and its price plunged. The stock now trades down over 90% from its pandemic-era peak.

Data by YCharts.

Moderna's core story hasn't changed, but the way Wall Street views the stock surely has.

3. Some investors may never make back their losses

If you bought into the hype during Moderna's huge stock price advance, you could be sitting on sizable paper losses right now. The math is not good.

A 50% price decline requires a 100% price increase just to reach breakeven. Moderna's decline from its peak is more than 90%, so the recovery math is even worse. It could take a very long time for some investors to get back in the black on their investment.

There's a consideration of the time value of money here. If you have other investments that you think have better growth potential, you might want to cut your losses and move on.

4. You can benefit from a Moderna loss, if you have one

The sell thesis gets even stronger if you consider the tax benefit that selling at a loss can create in a taxable brokerage account. Essentially, you can harvest the loss and use it to offset capital gains you may have in other investments.

In the end, dumping Moderna could help reduce the capital gains taxes you face come April 15. Importantly, this fact could help you move past the inertia that most investors feel when it comes to selling losing positions.

5. A near-term headwind that's not going away anytime soon

There's another reason that investors may want to dump their Moderna shares. Although mRNA has great long-term appeal, the political winds have shifted in the healthcare space. That has left companies like Moderna facing a situation where government support for medical research, particularly on the vaccine front, could be limited. Given that it is still early in the new administration, this is a significant issue that has at least a few years to run. And that, in turn, could mean weak financial results or, at the very least, a growth headwind for the foreseeable future. Investors may want to put their cash into an investment with more compelling prospects, which echoes the theme of point number 3.

A lesson that you can also benefit from

If you bought into the hype around Moderna during the pandemic, you should step back and try to use the subsequent price decline as an investment lesson. While its technology is likely to continue developing new treatments, that fact was overshadowed by Wall Street's emotional reaction to COVID-19. The takeaway for most will likely be to avoid following the crowd during periods of overexuberance.

If that were the only takeaway from dumping Moderna at a big loss, it would still be a valuable lesson. But the fact that you can use the loss to offset capital gains elsewhere in your portfolio turns what would feel like a stinging rebuke into a more positive outcome. You still need to take an investment lesson to heart, but the hit may not be quite as bad as you thought.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends Moderna. The Motley Fool has a disclosure policy.