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AbbVie Agrees to Buy Allergan With $63 Billion Offer

Posted: 26 Jun 2019 03:00 AM PDT

Merger would combine two of the industry’s largest players.

On Tuesday, AbbVie (ABBV) announced a plan to buy Allergan PLC for about $63 billion. Allergan is best known as the manufacturer of Botox and other beauty-related drugs, where it has a sizeable amount of market share.

The offer for Allergan came in at $188 per share in a mix of cash and stock, a 45 percent premium over where Allergan shares closed on Monday. Shares had already been rallying on the rumor that Allergan was looking to unlock value by breaking up the company.

Shares had already been rallying on the rumor that Allergan was looking to unlock value by breaking up the company. The deal will be subject to regulatory approval, given the size of both companies as well as the combined entity.

Both companies have traded at much higher prices in the past. Allergan shares have once topped $300, and AbbVie shares have traded north of $115. The current dour outlook for the pharma space and valuations as a result may likely spur some other mergers in the sector as well.

Action to take: With shares of AbbVie down over 14 percent on Tuesday given the news, current prices look like an excellent long-term entry point. The combined entity will have a broader mix of drugs across a variety of sectors, and shares have a dividend yield closing in on 5.5 percent. If the deal doesn't go through, there could also be a quick bounce in shares.

Insider Activity: Stoke Therapeutics (STOK)

Posted: 26 Jun 2019 03:00 AM PDT

Insiders buy millions of shares of genetic disease research firm.

Insiders continue to be bullish on the pharma and biotech space at current prices. One of the latest buys is in Stoke Therapeutics (STOK).

RWT Investments, a partnership that already owns more than 10 percent of shares, picked up 555,556 shares last week, increasing their stake by $10 million.

Then, this week, another big insider trade occurred.

Director Seth Harrison bought 1,388,889 shares via his holding company, Apple Tree Partners IV. This increased his stake to 17.7 million shares and represents a $25 million commitment in the early stage company. These buys are sizeable at a company with a market cap under $900 million, and are a strong vote of confidence that the company can deliver on its treatments.

Founded in 2014, Stoke recently closed an IPO to raise capital. The company is a biotech firm that is pioneering a new way to treat the underlying cause of genetic disease by upregulating protein expressions.

Action to take: With a limited trading history, and with shares moving above the IPO price, investors may want to sit this one out—but keep an eye out for the opportunity to buy shares close to the IPO price of $20 or less. As an early stage company, Stoke is still sitting on huge losses, and its treatment program may not prove successful.

Markets Decline as Powell Speaks

Posted: 26 Jun 2019 03:00 AM PDT

Chairman’s comments send stocks down.

The stock market dipped slightly on Tuesday.

Speaking at the Council of Foreign Relations, Federal Reserve Chairman Jerome Powell had the biggest opportunity to move the market. His comments slightly pulled back from the dovish views expressed in recent weeks, enough to send markets down in afternoon trading.

He also commented on the need for the Fed to remain independent of politics.

While the Chairman was speaking, St. Louis Federal Reserve President Jim Bullard, a far more dovish member of the central bank, noted that "it seems like a good time for an insurance rate-cut," to protect the economy and keep the expansion going.

Bullard added that the situation "doesn't call for 50bps," or a half-percent cut in interest rates. That comment is a response to Minneapolis Fed President Neel Kashkari, who recently called for a half percent rate cut.

While most traders now expect one to two cuts between now and the end of the year, moves are likely to stay in the quarter-point range barring a substantial deterioration in economic fundamentals.

Stocks still remain close to all-time highs, and Tuesday's decline still leaves the overall market in a healthy trading range, with the possibility to move higher later in the week as other concerns for the economy, such as trade and Iran, are addressed.

Unusual Options Activity: Delta Airlines (DAL)

Posted: 26 Jun 2019 03:00 AM PDT

Airline carrier may see big drop in shares.

A large bet has been made that shares of Delta Airlines (DAL) will drop in the coming months.

On Tuesday, nearly 3,000 contracts of the December 2019 $45 put options traded. With shares of the airline around $56.50, this is a bet on shares dropping by 20 percent between now and the end of the year.

The airline industry has fared well lately, and oil prices have been slow to rally into their usual summer season pattern this year. The trade could be a bet on slower economic growth, which tends to impact travel and tourism more heavily than average.

It could also be a bet on higher oil prices. Jet fuel is a huge cost component for airlines, and while most airlines hedge at least part of their fuel costs, they don't do so entirely. Usually, higher oil prices weigh on the shares of airliners.

Action to take: With the contracts trading around $0.85, it's certainly a cheap bet on the airlines, or just the market itself, to take a breather or decline.

However, with the airline industry operating as an oligopoly and focused on improving profit margins rather than competing with each other, the better bet is to use a pullback to buy shares for the long-term.

Consider Delta shares under $55, or buy a January 2020 $60 call option instead.
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