PFE’s $25 Billion Loss Opens New Trading Opportunities

Plus PSA, LVS, and BOT

By Bryan Bottarelli
Monday, December 04, 2006 11:16 AM EST
Mon, 4 Dec 2006 16:16:00 GMT

Dear Bottarelli Research Member,

There’s a lot happening today so let’s get right into it.

First off, mergers and acquisitions continue to flood The Street at a frantic pace. This morning, chipmaker LSI Logic (LSI — NYSE) agreed to buy Agere Systems (AGR – NYSE) in an all-stock deal worth about $4 billion. At the same time, Station Casinos (STN – NYSE) shot up $12.25 today on the news that they received an acquisition proposal that values its common shares at $82 each. Deals like this are hitting the news wire each and every day which leads to takeover speculation that’s hotter than ever — and I’d like to take full advantage. This leads directly into Pfizer (PFE – NYSE).

As I’m sure you’ve heard, Pfizer halted the development of their key new cholesterol treatment called Torcetrapib which is pushing the stock lower by $4.00 in early trading. That’s nearly $25 billion or PFE’s market cap — gone – all in one hour. Like a sharp blow to the gut, PFE shareholders are gasping for breath as management scrambles to steer the company in the right direction. With $12.83 billion in cash and a deteriorating pipeline, I’d guess that PFE looks to make a BIG acquisition to save the company. And my top biotech takeover candidate would be Celgene Corporation (CELG – NASDAQ).

CELG

Without question, Celgene has one of the most promising pipelines of any emerging biotech — with therapies designed to treat cancer and immune-inflammatory-related diseases. Drugs like THALOMID for erythema nodosum leprosum, REVLIMID for transfusion-dependent anemia, and FOCALIN for attention deficit disorder in children make CELG one of the best positioned biotech names on Wall Street.

If PFE was smart, they’d come in and use part of their $13 billion in cash to acquire CELG and solidify their position in the Big Pharma industry for years to come. Considering the enormous amount of M&A activity we’ve seen this year, a move of this magnitude is certainly not out of the question. In fact, a mere hint of an acquisition could send CELG shares soaring, and I’d like to be along for the ride. With CELG hitting new 52-week highs and PFE suffering to develop key drugs, let’s go out until April and own CELG calls.

PLAY: Buy the CELG April 60 Calls (LQH DL) at or under $5.00, good for the day. Current bid/ask spread is $4.70 to $4.80. Place a protective stop loss at $2.80.

Also shooting higher today is Public Storage (PSA – NYSE). In fact, the self-storage provider just hit an all-time high of $96.69 after hitting their best-ever close at $96.28 last week, signaling that PSA could break $100 before the year’s end.

I’m sure you’re familiar with Public Storage. It’s a real estate investment trust that operates 2,003 for-lease storage spaces on a month-to-month basis. With 126.4 million net rentable square feet in 38 states and 160 storage facilities in 7 European countries, PSA is a real estate play that’s shrugged off the struggles of homebuilder stocks and continued to blast higher day after day. As Christmas approaches — and rents expire at year-end, I fully expect this trend to continue, so let’s get positioned in PSA calls for a run to $100 and above.

PSA

PLAY: Buy the PSA March 100 Calls (PSA CT) at or under $3.40, good for the day. Current bid/ask spread is $3.00 to $3.40. Place a protective stop loss at $2.00.

I’d also like to play speculative upside calls on Las Vegas Sands (LVS – NYSE). As you know, LVS is an extremely volatile stock that makes for wonderful in-and-out trading opportunities. With the acquisition news from Station Casinos (noted above)driving all casino stocks higher, let’s play LVS for a quick hit using January 95 Calls.

LVS

PLAY: Buy the LVS January 95 Calls (LVS AS) at or under $6.00, good for the day. Current bid/ask spread is $5.70 to $6.00. Place a protective stop loss at $3.70.

Finally, the news concerning CBOT Holdings (BOT – NYSE) looks to be a non-event. The Department of Justice has requested additional information on the company’s proposed $8 billion acquisition by Chicago Mercantile Exchange Holdings (CME – NYSE), which is nothing more than a natural request with a merger of this magnitude. Both parties expect the deal to close on schedule by mid-2007.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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