What I did Monday (2 days post-Brexit)

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What I did Monday (2 days post-Brexit)

Please note that this is just what I did. There is no guarantee that these actions will turn out well. They are just for your information. None of this represented a major change in my portfolio. It was just working around the edges, and taking advantage of bargains.

I am giving prices as compared to Thursday’s close (pre-Brexit), just to give you orientation if you are not following a particular stock.

What I did to raise cash

I sold another 2.5% of the shares I had in LGIH (a trivial proportion) at $29.80. This was down just 1.0% from Thursday’s close at $30.10. This was because LGIH was at 18.5% of my portfolio (It’s still at 18.3%, and my largest position by far, so no loss of confidence there!)

I sold about 17% of my CBM position at $48.45. This was down just 2.1% from Thursday’s close at $49.50. It’s still my 6th largest position.

What I did with the cash to take advantage of bargains

I bought a little SKX at $27.20. This was down 7.2% from Thursday’s close at $29.30. SKX is my 2nd largest position.

I bought some SWKS at $58.85. This was down 12.4% from Thursday’s close at $67.20. SWKS is my 4th largest position. I don’t see how England leaving the EU in two years drops the value of SWKS by 12%. (Or even by 2% for that matter).

I bought some SBNY at $116.30. This was down 11.5% from Thursday’s close at $131.4. SBNY is my 5th largest position. I know the rational for the big banks being down is bi-fold. Less chance of Fed raising rates, and banks make more money at higher rates. But SBNY is growing rapidly at current rates! Second, big banks do a lot of business in Britain. SBNY does NO business at all in Britain (as far as I know), and none in the EU. SBNY’s clients do no business in Britain either. They are small to medium NY City businesses.

I bought some ANET at $61.20. This was down 17.1% from Thursday’s close at $131.4. ANET is my 7th largest position. This was a combination of Brexit plus the FTC confirming a preliminary decision that they had infringed 3 Cisco patents (out of 5 contested). This was no news as the confirmation was expected and Arista has already shipped the work-arounds, so it won’t affect their business in any significant way going forward, but in the panic mode of Brexit, people sold it off anyway.

I bought a little SSNI at $10.30. This was down 10.0% from Thursday’s close at $11.45, and down 24.7% from the high close two weeks ago at $13.68. SSNI is my 9th largest position. They do have a project scheduled for Manchester, but they have projects all over the world.

I bought a little MITK at $6.81. This was down 6.6% from Thursday’s close at $7.29, and down 26.6% from the high close a month ago at $9.28. MITK is my 10th largest position. No company specific bad news. Awarded three more patents in June.

I bought a little RUBI at 12.61. This was down 9.5% from Thursday’s close at $13.94, and down 14.3% from the high close two weeks before at $14.72. No company specific bad news. RUBI is my 12th largest position.

I bought some CRM at $76.90. This was down 6.6% from Thursday’s close at $82.30. CRM is my 13th largest position.

I bought some SEDG at $18.08. This was down 9.7% from Thursday’s close at $20.03, down 12.7% from the high close last week ago at $20.72, and down 20.0% from the high close two weeks before at $22.58. SEDG is a fairly new tiny position.

Finally, I bought some of another small position that I’m not ready to talk about yet. This was down 9.8% from Thursday’s close, and down 17.6% from the high close two weeks before.

Please note that these are not recommendations that you should do the same on any of these. I’m just letting you know what I did.

Saul

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Saul,

The folks who frequent this board always appreciate your kind sharing of what is on your mind and what stock actions you are taking.

Jim

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Interesting Saul. I continued lamenting and then thought about more UK oriented opportunities either because of opportunities (ARM) or value (Schroders, British Land, Prudential, Legal and General, HSBC, Lloyds or Barclays). I might try and raise capital from selling Abiomed or IMS etc that have held up well.
a

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I continued lamenting and then thought about more UK oriented opportunities

I have been looking at a few U.S.A. opportunities, but as I am in the UK, I have been put off by the exchange rate.

But if I was based in the U.S.A. I would definitely be looking very hard at stocks priced in sterling (or failing that, booking a holiday in London).

Ian

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Thanks, Saul.

In that same vein, I slightly increased my position in INFN. It’s down 21% since 6/8 (14% since Brexit).

  • Bear
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As an aside, the stocks I sold, CBM and LGIH, have bounced back 0.75% and 1.5%. The stocks I bought have bounced back from 1.7% to 6.8% (at the moment I’m writing), which was my intention in the first place. The biggest bounces are SEDG 6.8%, MITK 5.3%, SWKS, SBNY, and SSNI all well over 4.0%. Just seemed to make sense at the time.

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Much simpler,

I bought the IPO of TWLO. The company is the clear leader in its field (you can find articles on “Alternatives to Twilio” and the like, reading through its history, it is smart money funding the company, to ever greater and greater extent, and its value continuing to go up. $500 million in 2013, $1 billion in 2015 (based on private equity), it went to market underpriced due to IPO pessimism, and as I historically read about the company it has 400,000 registered developers, then a year later 550,000, the latest update is more than 900,000 registered developers, and growing.

The company is not profitable, but it continues to grow faster than expenses, and it does not have unlimited pricing power as there are 100s of other alternative providers (only a few even close to being a true substitute, and that would require rewriting business critical software to make the switch (no, it is not Microsoft or the like, we are talking APIs that can be re-written much quicker, and with lower switching costs, but the question is why would anyone go through the trouble just for a reasonable price premium. Simply they would not).

As for valuation, on tech terms it is still reasonably valued for a market leader, but given its IPO status, I have no idea where the stock will trade just on wide swings until it settles in.

I wrote a bit more about it on the New Stock idea board:http://discussion.fool.com/1069/twiliio-32291994.aspx

I am far too busy to follow the stock market like I use to. And frankly, I have found that buying and holding long-term is a more efficient way of investing rather than constant market monitoring or what not. Heck, if you owned a stock like ISRG, for example, crashed through the housing crisis, but had you just kept buying and not looking at it, you would not even have noticed.

More important to follow the investment thesis and business.

Twilio is in a remarkably rapid growing business, from Uber to IoT, and as the market leader, providing a better entire product (never gone down, not even when Amazon went down in 2011 (and they run on AWS)), the entire product, with better manuals, better customer service, a more complete whole product, with more developers, and more customers, Twilio will continue to gain a greater share of this growing pie than any other business in its field. That is just the math and networking effect.

Anyways, that is my spiel on it. Not market timing, but this is the first IPO I have ever bought into because of the above.

So I pretty much ignored Brexit, and have learned to live my life without constantly worrying or monitoring the market.

Tinker

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I added to SKX and GILD on the Brexit drop (so far).

Why those? It was just a matter of companies I hadn’t added to recently that I feel present compelling values.

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regarding ANET you wrote: “…had infringed 3 Cisco patents (out of 5 contested).”

there are only two that were found to infringe. Cisco abandon the third one.
They already worked out the work around and intend to comply with the ruling but they do not admit that they infringe any Cisco patents.

tj

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foodles -

How do you assess the risk factor on GILD? I realize that’s vague. Answer however you like, but here’s where I’m coming from:

Their 50%+ Net Margins have to come down at some point. In fact, Net Margin was down a lot in Q1. Now I don’t know whether this will be a gradual slide, offset as they buy back shares, or more of a jolt, where the stock price has to go through a correction. The jolt could be for any number of reasons – the risks that stand out to me have to do with possible new regulation, patents expiring, etc.

Any thoughts?

Thanks,
Bear

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Bear,

How do you assess the risk factor on GILD?

I realize I’m not foodles but I was hoping I could take a stab at that. This is how I assess Gilead’s risk factor: They have a P/E of under 7. Cut their earnings in half and they still have a P/E of just a tad over 13. With a P/E so low any catalyst should send the stock up higher.

Gilead’s cash flow, share buyback program, growing dividend, pile of cash, decent pipeline and potential for acquisitions makes it an attractive stock at these prices.

Please realize that this is just my humble opinion and that I’ve been wrong many times before!

Matt
Long GILD
MasterCard (MA) and PayPal (PYPL) Ticker Guide
See all my holdings at http://my.fool.com/profile/CMFCochrane/info.aspx

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Matt,

Don’t worry about not being Foodles. :slight_smile:

With a P/E so low any catalyst should send the stock up higher.

What could that catalyst be?

  • Bear
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What could that catalyst be?

It could be almost anything. Today we got this news:

Under its Priority Review process, the FDA approves Gilead Sciences’ (GILD +3.2%) once-daily fixed-dose combination of sofosbuvir (SOF), a nucleotide analog polymerase inhibitor, and velpatasvir (VEL), a pan-genotypic NS5A inhibitor, for the treatment of adults with chronic genotype 1-6 hepatitis C virus (HCV) infection with and without cirrhosis. It is also approved for use with ribavirin.

The single-tablet med will be marketed under the brand name Epclusa.

From http://seekingalpha.com/news/3190820-fda-approves-gileads-so…

And Gilead was up over 5% (granted off of a deep low and on a day that saw stocks go up pretty big). But catalysts could be other news from the FDA, earning beats, or acquisitions. I feel like there’s a whole lot that could go right for Gilead, none of which is priced in at this point. On the flip side, with a P/E so low, I feel like almost all the possible bad news is baked into the price.

Again, those are just my personal opinions.

Matt
Long GILD
MasterCard (MA) and PayPal (PYPL) Ticker Guide
See all my holdings at http://my.fool.com/profile/CMFCochrane/info.aspx

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What could that catalyst be?
Any new drug getting through the approval system and into the market?

I don’t expect any quick pops with my GILD shares, but appreciate their pipeline and prospects.

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I get that GILD is cheap because it’s PE is compressed. But I think it will take a catalyst to change that. They’re already quite big…if they could somehow return to substantial growth I think that would do it. Just don’t know how likely that is. There’s also the risk they grow, but margins contract, which could still be bad.

But more basically, I don’t see how saying “we’re waiting for some good news” is an investing thesis. You could say the same about IBM. It’s cheap. But it’s cheap because for a while now they’ve been making less money each quarter.

Honestly I feel the same about SWKS. Sure it’s cheap, but they’re not projecting too much growth in the near future. How long before something makes that PE decompress? And hopefully they can keep their margins sky-high.

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I agree with many of the previous replies of why GILD is a compelling buy at this time (even considering the “risk” of contracting margins), and why I just bought some more at a PE of 6.9 before today’s rise.

I look at my GILD position as very similar to my AAPL position.

GILD has their Hep C drugs, AAPL has the iPhone, GILD has their HIV drugs, AAPL has the iPad, etc. Both make a crap ton of money from those products and are deploying that cash in meaningful ways that will increase the value of their shares in the future. Although nobody can predict WHEN the share increases will come, I want to make sure I’m holding shares when it does. Whether it comes from future acquisitions, their own R&D and pipeline development, significant share buybacks, or growth in their current core products (not happening currently).

Some other random stats I got from Tom E’s last page post on them, Gilead has 22 commercial products, and 26 drugs in various stages of clinical development. I can’t help but think there are going to be some winners in there. The Company believes there are over 3 million Hep C patients in the U.S that have yet to be treated, yet only 30,000 patients are currently being treated with Gilead’s Hep C products. Also, there were 200,000 NEW cases of Hep C in the U.S. last year.

Yes, the Hep C margins will probably continue to contract, but as others have pointed out, there are so many other catalysts that will send the stock much higher, is why I bought more on the most recent dip.

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Also, there were 200,000 NEW cases of Hep C in the U.S. last year.

Do you have a citation for that?
CDC estimates 30,500 new cases in 2014 http://www.cdc.gov/hepatitis/statistics/index.htm

-Brian
Senior Biotech Specialist for Fool.com

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New reported cases are about 2000-3000 per year and actual numbers are 20,000-30,000 per year. With a cure on the market and the reduction of cross infections that is going to come way down further. Once the warehoused patients are treated and cured, there will not be much of a market left for drug companies of any significance. Gilead’s long term business is not going to be based on Hep C - it is not like iphones there will not be peak demand forever but a fast diminishing market.
Ant

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Also, there were 200,000 NEW cases of Hep C in the U.S. last year.

Do you have a citation for that?

Whoops, yes, looks like there was an extra “0” in there.

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Out of recs for the day, guys, or I would be passing some around. In addition to Foodles’ excellent response (I also think of it as the Apple of the biotech world), I would like to add a few more things.

But more basically, I don’t see how saying “we’re waiting for some good news” is an investing thesis. You could say the same about IBM. It’s cheap. But it’s cheap because for a while now they’ve been making less money each quarter.

A few things, Bear. First, IBM’s P/E is about 11 right now. That’s about 65% more expensive than Gilead. If Gilead’s P/E were to increase to a similar number as IBM, it would be sporting a price close to $130. So, as cheap as IBM is, it’s far more expensive than Gilead.

Second, while GILD’s earnings are flatlining they have not yet decreased. This stands in stark contrast to IBM’s approximately 882 quarters of declining revenues and earnings.


Revenue (billions)	Q1		Q2		Q3		Q4			
2013									3.120	
2014			4.999		6.535		6.042		7.314	
2015			7.594		8.244		8.295		8.506
2016			7.794

EPS (non-GAAP)	Q1		Q2		Q3		Q4	
2013									0.55	
2014			1.48		2.36		1.84		2.43		
2015			2.94		3.15		3.22		3.32	
2016			3.03

Current (2016 Q1 Earnings):

Revenue Growth (billions)
2015 Q1 TTM Revenue = 27.485
2016 Q1 TTM Revenue = 32.839
Year Over Year Revenue Growth = 19.48%, last quarter 31.1%

EPS Growth (non-GAAP)
2015 Q1 TTM Earnings = 9.57
2016 Q1 TTM Earnings = 12.72
Year Over Year EPS Growth = 33%, last quarter 55.7%

P/E (Check Current Price) = /12.72 = 6.47

1YPEG = 6.47/33 = 0.196

I fully expect Gilead’s numbers to start declining the next few quarters, but let’s not compare it to IBM just yet.

I don’t have a problem waiting for a stock to increase when it’s sitting on a mountain of cash, generating tons of cash flow and cheaper than IBM. Especially when an example of such a catalyst I gave went waaaaay back to earlier this afternoon :slight_smile:

Gilead’s track record of acquisitions is unparalleled. With a growing dividend and increasing share buybacks, I really do like the company at these prices. Again, JMHO. This conclusion to an article (from last December) almost perfectly sums up my feelings on the company:

But a valuation of 8x earnings, I think investors are well-compensated with a margin of safety to wait and see how management eventually addresses the perils of its own success. Before Sovaldi came out in 2013, Gilead would sit on about $1.5 billion in cash. Now, it has nearly $9 billion in cash. Even with the dividend, there are still $3.5 billion rolling into headquarters each month. Most likely, this will be deployed into acquisitions over time.

Between 1999 and 2014, Gilead purchased fifteen companies at an average price of $515 million (for total M&A activity of $7.7 billion). Nowadays it will have that much money to deploy every six months. Gilead’s management has indicated a preference for purchasing companies with strong commercial potential that haven’t yet completed testing and struggle to secure financing to remain independent companies, and it is entirely possible that Sovaldi could generate nearly $100 billion for Gilead management to deploy between now and the date of the patent expiration. In short, I agree that the risk of a patent cliff is legitimate, but the important countervailing force to consider is the vast amounts of cash that Gilead will have to combat this (Eli Lilly and Pfizer, meanwhile, were shipping out so much cash to shareholders as dividends that it didn’t have the same wild flexibility to develop alternatives).

The P/E ratio of 8 for Gilead Sciences seems to compensate investors well for the risks associated with owning a stock heavily tied to the success of one drug. The risk of near-term pricing regulation is remote, and is something that remains headline rather than fundamental risk. The concerns about the patent cliff for Sovaldi are legitimate, but are counterbalanced by the amount of cash that Gilead will receive in the coming years to add ballast to the drug pipeline. When you have $10+ billion in annual retained profits showing up between now and the early 2020s, and you have a starting valuation of 8x earnings, you stand to beat the S&P 500 even if a whole lot goes wrong.

From http://theconservativeincomeinvestor.com/2015/12/22/why-gile…

Matt
Long GILD
MasterCard (MA) and PayPal (PYPL) Ticker Guide
See all my holdings at http://my.fool.com/profile/CMFCochrane/info.aspx

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