Trading tapers before holiday; Gilead Sciences steady on hedge; Royal Gold better to buy

By Rebecca Melvin

New York, Dec. 23 – Convertibles were quiet Tuesday as the countdown to the Christmas holiday began to be measured in terms of hours instead of days.

“People are probably getting their last trades off as we speak, and by 12 today, they will be done,” a New York-based trader said early in the session.

There was a better feel to the market Tuesday, the trader said. But “with credit widening and still caution with energy, no one wants to take any risk with credit or things on the cusp,” the trader said.

Gilead Sciences Inc.’s convertibles continued to trade down with their underlying shares on an outright basis, but were steady on a hedged basis. The move extends a sharp drop on Monday after news that pharmacy benefits manager Express Scripts Holding Co. has chosen AbbVie Inc. to be its sole provider of hepatitis C treatment, based on cost benefits, and replacing hepatitis C treatments from the Foster City, Calif.-based biopharmaceutical giant.

Elsewhere, Royal Gold Inc.’s convertibles were mentioned as better to buy on a dip in gold prices.

The Royal Gold 2.875% convertibles were seen at 102.5 bid, 103 offered. Shares were up $1.99, or 3%, to $62.90 in the early going Tuesday.

Goodrich Petroleum Corp. was getting a look after the Houston-based oil exploration and production company said it closed on a previously announced divestiture of certain non-core East Texas assets for $61 million. Neither the Goodrich stock nor the bonds really moved on the news. The Goodrich 5% convertibles were still seen in the low 50 range.

Wesco International Inc.’s 6% convertibles due 2029 were quoted “reasonably higher” at 275, with shares of the Pittsburgh-based supplier of electrical and industrial supplies up to $77.92, or nearly 1%, on the day.

“It has definitely quieted down. But I feel like we have been more busy than I would have thought as people wrapped up stuff before year-end,” a trader said.

Blue chip stocks gained, sending the Dow Jones industrial average over 18,000 for the first time, and higher for the last five sessions since last Wednesday when the Federal Reserve cheered investors with its policy statement that it plans to be patient regarding raising rates.

Boosting shares on Tuesday was the Commerce Department’s final estimate for third-quarter U.S. gross domestic product, which was revised up to a better-than-expected growth pace of 5%.

The only sector that was negative on Tuesday was health care, but that held back the Nasdaq stock market, which ended fractionally lower at 4.765.42.

The S&P 500 stock index ended higher by 3.63 points to 2,082.17.

Bond markets and U.S. equity markets will open for an abbreviated session Wednesday and be closed on Thursday.

Gilead remains below parity

Gilead’s 1.625% convertibles slipped into triple par territory from quadruple par, trading last at about 395 on Tuesday, after dropping about 70 points to 408 on Monday.

Gilead shares fell $15.55, or 14%, to $92.90.

The Gilead D convertibles remained 1 point to 2 points below parity, which was essentially where they had been, a convertibles trader said.

A second trader said they were unchanged at minus 1.125 points less parity.

The volatility in the stock has sparked trade in the convertibles where there is good two-way flow as market players either sell or buy the dip.

“They have stayed in line on swap,” a trader said.

Gilead lost a good chunk of market capitalization on Monday with a 14% drop in shares on news that AbbVie got its drug approved and Express Scripts granted it exclusivity for treatment of hepatitis C.

Some believe that this is a small bump in the road for Gilead, which is a market leader in many areas of health care.

Mentioned in this article:

Gilead Sciences Inc. Nasdaq: GILD

Goodrich Petroleum Corp. NYSE: GDP

Royal Gold Inc. Nasdaq: RGLD

Wesco International Inc. NYSE: WCC

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