After the 41 percent fall in Bayer shares (ISIN: DE000BAY0017) from 76 euros (February 19, 2020) to up to 45 euros (March 16, 2020) and the subsequent recovery to up to 64.24 euros, the Share again up to EUR 57.20 by May 22, 2020. When an agreement with numerous plaintiffs in the glyphosate dispute was announced on May 25, 2020, the share temporarily rose by ten percent and has since then mostly been traded within a range of 60 to 62 euros.
If the optimistic assessments of the experts at Baader Bank are fulfilled, who recommend buying the share with a target price of up to EUR 105, then the share price should have further potential for growth.
The investment idea: Investors who in principle expect the Bayer share price to remain stable, but who do not want to completely rule out renewed price weakness after the sharp rise in the share price, could consider investing in discount certificates for the share. Discount certificates enable cheaper entry into the share and reduce the risk of buying shares directly. On the other hand, the return potential of the discount certificates is limited in contrast to the unlimited profit potential of the equity investment.
How it works: If the Bayer share is listed on or above the cap, which defines the highest payment amount of the certificate, on the valuation day of the certificate, the discount certificate will be repaid with its maximum amount of EUR 50.
The key data: The cap on the Morgan Stanley Discount Certificate (ISIN: DE000MC5AC49) on Bayer shares is around 50 euros. The valuation day is June 18, 2021, and the certificate will be redeemed on June 25, 2021. At the Bayer share price of EUR 62.58, investors were able to buy the certificate at EUR 46.54. The certificate is thus 25.63 percent cheaper than getting the share.
The opportunities: Since investors can currently purchase the certificate at EUR 46.54, it will allow gross earnings of 7.43 percent (= 7.01 percent per year) in the next 13 months if the share price on the valuation day is above the 50 cap Euro noted. This means that the share price can allow itself a price drop of 20.10 percent before the maximum return on this certificate is jeopardized.
The risks: If the Bayer share is listed below the cap of EUR 50 on the valuation day, the certificate will be repaid at the closing price of the share determined on the valuation day. If the share is quoted below the purchase price of the certificate on this day, i.e. below EUR 46.54, the certificate investment – before expenses – will cause a loss.
This article does not constitute a recommendation to buy or sell Bayer shares or investment products in Bayer shares. We assume no liability for the accuracy of the data.
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