Investors should buy Bristol-Myers Squibb Co. (BMY) calls as approval for a melanoma treatment may boost the drugmaker’s stock price, Goldman Sachs Group Inc. said.
Equity derivatives strategist John Marshall recommended investors buy April $26 calls because 30-day implied volatility, the key gauge of option prices, is now low and below three-month implied volatility. The strategist cited drug analyst Jami Rubin, who’s kept a “buy” rating on the stock since June and a price forecast of $30. Bristol-Myers gained 3 percent to $26.14 today.
“Bristol-Myers remains the most (in fact, only) compelling new product story in the pharma sector, with significant room for consensus upside earnings-per-share revisions,” New York- based Marshall wrote in yesterday’s report. “Given our expectation for higher volatility than normal over the next month, we believe options prices are attractive.”
The New York-based drugmaker is awaiting U.S. regulatory approval for its ipilimumab treatment for melanoma, which was originally scheduled for Dec. 25 and got delayed until March. If approved, the drug would be the first new melanoma medicine in more than a decade and may produce up to $1 billion in annual sales within five years, said Linda Bannister, a health-care analyst at Edward Jones & Co. in Des Peres, Missouri.
Calls would more than double if Bristol-Myers gains at least $1.50 by the end of March, the note said.
Bristol-Myers rose 7.4 percent in the past year, more than the 4.2 percent increase for health-care companies in the Standard & Poor’s 500 Index.
Calls give the right to buy 100 shares of a security for a certain amount, the strike price, by a set date. Puts convey the right to sell. Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price moves or bet that volatility, or stock swings, will rise or fall.
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