The LEAPS Option Trader
105 W. Monument Street
Baltimore, MD 21201
Monday, April 17, 2006
Email – #310
** In Sickness and In Health
One of the least-followed big pharma companies in the U.S. is sanofi-aventis. This French pharma is arguably the most innovative of all the major drug companies on the planet. While many of the U.S. drug giants are on the decline, as measured by drugs in the pipeline and growth in sales and earnings, sanofi (NYSE: SNY) is on the opposite track.
The company has posted significant top- and bottom-line growth, almost 10% on the top-line in 2005 and 25% on the bottom-line. The company’s top 15 drugs have experienced strong double-digit year-over-year sales growth. At current levels of $46, the shares are trading at less than 15 times current earnings and less than 10 times projected earnings for 2008.
The 2008 number is critical because it is in January 2008 that our LEAPS options will expire. By that time, I expect the shares to be trading in the $60 to $80 range. There is a good reason for the wide range; I will get to it in a moment.
sanofi has always been a bit of a strange bird in the pharma business. The driving force behind the company is research and testing. Traditional drug companies look for a problem and then try and develop a drug as a solution. sanofi and its recent acquisition aventis approach the business from both a traditional and novel point of view. aventis take the more traditional route – developing a compound for a specific ailment and following it through. sanofi looks at the science of the compound. They begin on the track that looks for a cure, but along the way they are actively looking for other potential cures that could occur from the compound.
A good example is a recent compound that they are working on for nervous system disorders. During early-stage testing of the product, the scientists recognized that the drug’s side effects were a combination of smoking cessation and weight loss – two huge markets. Now the company is concentrating on three blockbuster compounds instead of just one.
sanofi also owns one of the largest vaccine shops in the world – sanofi-pasteur. sanofi-pasteur sold more than a billion doses of various vaccines in 2005 and is the company’s fastest-growing division. One of its key products is a “bird flu” vaccine. sanofi-pasteur is under contract to provide this vaccine for a number of major governments, including the U.S. and Australia. It is this division and the potential for a bird flu pandemic that makes the potential profits from this pharma so exciting. And this is the reason why the price range for the coming years is so wide.
There are other bird flu plays, but most are in early stage biotechs that have not yet conducted human trials like sanofi. This play is a two-pronged play. First, we are betting on normal success at company’s businesses to deliver share price appreciation. With projections of up to $5 per share in earnings for 2008 and 2009, the shares should sport at price tag of $70 by early 2008. For LEAPS investors, we are not necessarily interested in where the price is exactly, but that the direction is upward. If sanofi shares reach $55 to $60 by this time next year, our LEAPS should double in value. If the bird flu moves from crisis to pandemic, the shares could see pricing in the $70s to $80s overnight.
Here is the play on the top pharma company in Europe:
Buy the sanofi (NYSE: SNY) January 2008 $60 call LEAPs (WFK AL.) The price is currently $2.35 on the offer. DO NOT PAY MORE THAN $2.45. We are looking for a 20% move in the shares over the next 12 months and a 50% to 100% move in the options. As usual we will not be employing a stop-loss right now.
Current Portfolio:
Company / Symbol: sanofi-aventis (NYSE: SNY)
Option / Symbol: Jan. 08 $60 call (WFK AL)
Date Purchased: New
Current Price: $2.35
Comment: Buy. Do not pay more than $2.45.
Company / Symbol: Boston Scientific (NYSE: BSX)
Option / Symbol: Jan. 08 $30 call (WBX AF)
Date Purchased: 2/27/06
Current Price: $1.60
Comment: Hold
Company / Symbol: Target (NYSE: TGT)
Option / Symbol: Jan. 08 $50 put (WDH-MJ)
Date Purchased: 10/20/05
Current Price: $4.60
Comment: Hold.
Company / Symbol: Microsoft (Nasdaq: MSFT)
Option / Symbol: Jan. 08 $30 call (WMF AF)
Date Purchased: 8/8/05
Current Price: $2.15
Comment: Hold.
Company / Symbol: S&P 500 MITT (AMEX: MCP)
Date Purchased: 7/18/03
Current Price: $11.38
Comment: Hold.
Bull & Bear Spreads
Company / Symbol: Couer D’Alene (NYSE: CDE)
Option / Symbol: Jan. 08 $7.50 call (LGZ AU)
Date Purchased: 3/27/06
Current Price: $2.25
Comment: Hold
Company / Symbol: Couer D’Alene (NYSE: CDE)
Option / Symbol: Jan. 08 $10 call (LGZ AB)
Date Purchased: 3/27/06
Current Price: $1.55
Comment: Hold. Sold call against January 08 $7.50 position.
Company / Symbol: Nasdaq 100 Trust (Nasdaq: QQQQ)
Option / Symbol: Jan. 07 $42 put (VCQ MP)
Date Purchased: 2/1/06
Current Price: $1.90
Comment: Hold.
Company / Symbol: Nasdaq 100 Trust (Nasdaq: QQQQ)
Option / Symbol: Sell Jan. 07 $38 put (VCQ ML)
Date Purchased: 2/1/06
Current Price: $0.80
Comment: Hold. Sold put against January 07 $42 position.
Company / Symbol: Energy Select SPDR (AMEX: XLE)
Option / Symbol: Jan. 07 $39 put (ORJ MM)
Date Purchased: 3/1/05
Current Price: $0.35
Comment: Hold.
Company / Symbol: Energy Select SPDR (AMEX: XLE)
Option / Symbol: Sell Jan. 07 $37 put (ORJ MK)
Date Sold: 3/30/05
Current Price: $0.25
Comment: Hold. Sold put against January 07 $39 position.
Bio:
Karim Rahemtulla is the former Investment Director of The Oxford Club. The editor of The Smart Options E-Report, The Income Trader – A Covered Call Strategy and The LEAPS Option Trader, Karim is also a regular contributor to The Oxford Club Communiqué. His highly successful trading systems use covered calls and LEAPS to boost returns on blue chip stocks, and during the bear markets of 2000 and 2001, his picks outperformed the major market averages. Educated in England, Canada and the U.S. and fluent in several languages, Karim travels the world to find the best investment opportunities for our members.
Copyright – 2006 Mt Vernon Options Club. Mt Vernon Options Club does not act as an investment advisor or advocate the purchase or sale of any security or investment. Mt Vernon Options Club expressly forbids its writers from having a financial interest in any security recommended to its readers. All of our employees and agents must wait 24 hours after an Internet publication prior to following an initial recommendation. And for hard-copy-only publications, 72 hours after the publication is mailed. Investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. Mt Vernon Options Club provides its members with unique opportunities to build and protect wealth, globally, under all market conditions. The executive staff, research department and editors who contribute to recommendations are proud of the reputation Mt Vernon Options Club has built since its inception in 1984. We believe the advice presented to its members in our published resources and at our meetings and seminars is the best and most useful available to global investors today. The recommendations and analysis presented to members is for the exclusive use of members. Copying or disseminating any information published by Mt Vernon Options Club, electronic or otherwise is strictly prohibited. Members should be aware that investment markets have inherent risks and there can be no guarantee of future profits. Likewise, past performance does not assure future results. Recommendations are subject to change at any time.
