Although the market may seem expensive to many investors, solid bargains remain in many individual stocks.  You can find opportunity in both value stocks and riskier stocks.

Risk-tolerant investors might consider Puma Biotechnology, Inc. (NYSE: PBYI), a development-stage pharmaceutical firm. Puma is on the cusp of receiving FDA approval for a promising new breast cancer treatment.

Investors have already shown their growing interest in Puma, boosting shares 1,600% in the past five years. Yet, I’d argue that Puma has by much more room to run.

The firm’s appeal stems in large part from its value as a buyout target. If you’re familiar with biotech, then you know mergers and acquisitions, or M&A, has been a major industry theme for many years. Larger drug makers have been snapping up smaller ones in their quest for growth and deeper product pipelines, pushing M&A activity back to levels not seen in more than half a decade. To illustrate that, take a look this chart I saw in Reuters recently.

In Puma’s case, its flagship breast cancer drug, neratinib, could fetch a hefty premium from any number of the big pharmaceutical names. Indeed, analysts at RBC Capital Markets have called Puma an “obvious” buyout target because of the drug’s performance in clinical trials.

As a quick primer, neratinib is emerging as the leading neoadjuvant therapy (a treatment given before the main therapy) for HER2-positive breast cancer. HER2-positive refers to the type of breast cancer that contains a certain protein that promotes the growth of cancer cells. An estimated 20% of breast cancers are HER2-positive, and they’re typically very aggressive.

A couple key clinical studies that have shown the benefit of neratinib in HER2-positive breast cancer include a phase II I-SPY2 trial completed about a year ago and a Phase III EXTeNET trial that ended last summer.

#-ad_banner-#In short, the trials found neratinib to be far more effective than the standard therapy — a Roche Holding AG (OTC: RHHBY) drug called Herceptin plus chemotherapy — against HER2-positive breast cancer. The same was true of neratinib as a treatment for HR-negative breast cancer, a type that’s unlikely to respond to hormone therapy.

In Spring 2014, shares of Puma fell 50% when phase III data put the incidence of severe diarrhea for neratinib at nearly eight times that of Herceptin (30% vs. 4%). However, investors’ concerns about this quickly evaporated after the mid-summer release of EXTeNET findings, which triggered a rapid fourfold gain in Puma’s stock.

Moreover, researchers have since found that the rate of severe diarrhea in neratinib-treated patients drops to a much more reasonable 8% when these patients also receive the anti-diarrhea medication loperamide.

Puma’s stock suffered another, more modest, setback in December when the firm said it would file a new drug application for neratinib in early 2016, rather than the first half of this year as originally planned. While this clearly displeased the market, it should facilitate the approval process.

The decision to delay was based on feedback from the FDA, which prompted Puma to change the proposed indication to early-stage HER2-positive breast cancer from a more advanced stage of the disease. The firm simply needed more time to gather the additional data necessary for the revised indication. The market seems to have accepted this, as Puma’s stock has more than recovered from the early December drubbing.

Although there are currently no reports of Puma entering into buyout talks, analysts see plenty of potential suitors for the firm.

Gilead Sciences, Inc. (NASDAQ: GILD) may wish to expand beyond its core HIV and hepatitis markets.

Bristol-Myers Squibb Co. (NYSE: BMY) and Celgene Corp. (NASDAQ: CELG) could both boost shareholder value by adding neratinib to their already formidable oncology lineups. Celgene, for example, has profitable breast and pancreatic cancer drugs, and Bristol-Myers holds strong positions in the lung and skin cancer markets, among others.

Based on trial findings and the potential for more indications, such as lung tumors and other HER2-positive cancers, analysts say sales of neratinib could eventually peak at $3-to-$6 billion annually. Last summer, equity research firm Leerink Partners LLC valued Puma at $300 per share, 23% higher than the current stock price of $244. A month ago, UBS analysts said $330 a share would be a “fair take out price” for Puma, but prices as high as $437 were possible, suggesting 35%-to-79% upside for the firm’s stock.

Risks To Consider: Although FDA approval for neratinib appears likely, there is always the risk that the FDA decides that the drug is not superior to existing, approved drugs.

Action To Take –> Buying a stock on hopes of a buyout deal is a risky proposition, but worth considering in Puma’s case, because neratinib is so far along in the approval process and should garner multiple indications over time.

Thus, one of the larger drug firms could be willing to fork over the kind of money UBS and Leerink mentioned for an asset that looks like a pretty sure bet at this point. This sort of thing has been happening, like the 64% premium Roche recently agreed to pay for InterMune, Inc. so it could own the latter’s pulmonary disease medication.

Still, with no deal yet in the works, Puma is very much a swing-for-the-fences type of investment. So only holding a small stake in the company would be the wisest approach to the stock.

If you want to take a more conservative approach to M&A activity, then you should follow Stock of the Month, which holds an exchange-traded fund that capitalizes on M&A deals. In fact, if you want to avoid the hassle of digging into a company’s financials and decoding corporate lingo, then Stock Of The Month is definitely for you. This premium service delivers full analysis of one premier investment to your inbox each month. To learn more about this service, click here.