Well-Known Big Pharma Has the Right Makings for a Successful Trade
This cheap, high-yielding stock sets up well for a covered call strategy. Here's how to do it.
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Two weeks ago, we offered a covered call trade idea around Novo Nordisk NVO. That position is off to an excellent start, with NVO advancing just over 10% in trading this past week.
Today we are going back to Big Pharma to highlight another solid covered call opportunity. While this large drug concern is seeing slight declines in revenues and profits, it trades with a single-digit P/E ratio and yields more than 5%. We can enhance that yield and provide some downside mitigation via covered call orders.
Bristol-Myers Squibb's BMY origins date back to the American Civil War. The stock is down by one-quarter from its earlier highs this year providing a discounted entry point.
The healthcare giant sold eight blockbuster drugs in 2024, including PD-1 monoclonal antibody Opdivo (nivolumab) for multiple cancer indications and stroke prevention med Eliquis (apixaban), which collectively accounted for nearly half of its 2024 revenue. The challenge for Bristol-Myers and its shareholders is most of these blockbusters face oncoming patent cliffs.
Both Opdivo and Eliquis have patents that expire in 2028. Opdivo generated around $4.8 billion in sales last year, accounting for just over 20% of overall sales. The company is hoping that Opdualag, a combination of Opdivo and LAG-3 blocking antibody relatlimab, which is approved for first-line unresectable or metastatic melanoma, will pick up some of the slack when Opdivo succumbs to generics. The "replacement" generated sales of $537 million in the first half of 2025, up 22% from the prior-year period.
Eliquis delivered sales of about $7 billion in 2024, accounting for approximately 30% of overall revenues. This drug already faces generic competition in Europe and U.S. while patent protection, as stated previously, will expire in 2028.
To make up for this loss of revenues as patents are no longer in force, Bristol-Myers has a vast and diverse pipeline with seven candidates in Phase 3 development as well as several potential label expansions, all of which will have readouts by 2027.
Management has also used the company’s balance sheet and free cash flow to acquire Krazati (adagrasib) for the treatment of non-small cell lung cancer and schizophrenia agent Cobenfy (xanomeline and trospium chloride). They hope both grow into blockbuster therapies. The company has also executed two large restructurings in recent years aiming to take out $3.5 billion in annual operating costs.
The analyst community believes the next few years for Bristol-Myers will see slight declines in both earnings and revenues on an annual basis. However, that seems already baked into the stock price, with the shares trading at roughly seven times this year’s projected profits, with a 5.5% annual dividend yield.
Option Strategy
Here is how one can initiate a position in BMY utilizing a covered call strategy. As a reminder, covered-call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.
Selecting the March $45 call strikes, fashion a covered call order with a net debit in the $41.30 to $41.40 a share range (net stock price - option premium). Liquidity is excellent with the options against this equity.
This strategy provides downside protection of 11% over the trade’s duration, which includes two dividend payouts of $0.62 a share. This strategy also provides upside return potential of approximately 12%, including dividends, even if the stock trades flat over its option duration.
At the time of publication, Jensen was long NVO and BMY.
