GILD

Investment Analysis Clubs Saul’s Investing Discussions
1

GILD reminds me of the Apple situation a year ago. Just like Apple, GILD has a low multiple, a proven management team, a solid product portfolio that’s generating solid cash flow, dozens of products in their pipeline, and a solid balance sheet.

anirban, you have convinced me that GILD is worth a look and perhaps, PERHAPS, a starter position, but to compare it to Apple seems ludicrous. Sorry to say it, but really ludicrous. GILD is a small biotech, which is subject to having it’s revenue greatly cut by a bunch of nondescript prescription plans. Apple is probably the preeminent technology company on the planet. Certainly the most powerful, maybe the most powerful company of any type, the one with the highest capitalization, the greatest profits, a HUGE cash stash, etc. It’s a company that has revolutionized the way we listen to music (iPod) and the way we communicate with each other (iPhone) and created an entirely new category or two (smartphones and iPads). It is incredibly more secure than GILD, and it’s very risky to think of GILD and AAPL as similar.

JMO

Saul

2 Likes
2

GILD is a small biotech

GILD is hardly small. It is a large biotech company. In fact, it is 50% larger then CELG by market cap. Like Celgene, GILD can eat small biotechs for lunch. It dominates the HIV therapeutics market and has the first ever cure for hepatitis C.

Chris

4 Likes
3

Hi Chris, I certainly wouldn’t compare Celgene with Apple either. Apple has a cult following. Each new iPhone sells out beyond everyone’s wildest expectations. Each new product is awaited throughout the world. A company like that is much more secure than either Celgene or GILD, in my opinion.

1 Like
4

I wouldn’t compare them to APPL either. They are very different. All three companies will be around in 5 years in one form or another. However, CELG and GILD could possibly be acquired by a big pharma but their marketed products and some of the products in clinical trials will be here for a long while.

Chris

5

Hi Saul,

I didn’t compare the two companies. Of course, they are different businesses. One’s a consumer electronics giant while another is a biotech giant. I said there are parallels with respect to the reasons why Apple was cheap last year and why GILD is cheap now. The similarity is with respect to earnings multiple, management team, past execution & discipline, buy backs, and start of a dividend program.

All said, GILD is one of the solid bargains in the market. Worth a look.

Anirban.

7 Likes
6

Chris,

I could be totally wrong but GILD is potentially past the stage where another pharma would acquire it. Over the next few years, I would think GILD would be acquiring smaller companies with its cash. It’s got a solid balance sheet.

At 140B market cap, it’s one of the bigger biotechs out there in the market.

Anirban.

7

Apple was a small company once, and that was the best time to invest.

Nobody is comparing Apple and Giliad directly, only saying that the stock market reaction seems similar. Nothing but perceptions changed during AAPL slide and rebound, the same may be true of GILD. Because whether they make $100,000 or $50,000 per dose, it’s still a lot of money and a big profit. And like Apple, Giliad seems to be very well managed,with a string of past successes, with lots of cash to finance further R&D without the usual drug company dilution or debt. Will their R&D be a winner? Who knows, but there was no advance warranty that iPhone 6 was going to be a smash hit either.

6 Likes
8

Hi Saul,
Gild is not only the biggest Biotech (its market cap is much bigger than Amgen, Biogen, etc.), but also one of the big biopharma companies. Merck is “only” 20B more than Gild has now. As Anirban and others pointed out, Gild has rich pipeline (besides HIV franchise with 10B annual sales, HCV franchise with more than 10B annual sales, Gild is aggressively entering Bone disease and Oncology fields, and has prodcuts in the market already), great management team, and clean balance sheet. Plus, Gild is cheaper than Mrk, pfe, amgn, biib from the pe standpoint. So IMHO, Gild is a solid long term play.

Zangwei

4 Likes
9

Hi Saul, Gild is not only the biggest Biotech (its market cap is much bigger than Amgen, Biogen, etc.), but also one of the big biopharma companies. Merck is “only” 20B more than Gild has now. As Anirban and others pointed out, Gild has rich pipeline (besides HIV franchise with 10B annual sales, HCV franchise with more than 10B annual sales, Gild is aggressively entering Bone disease and Oncology fields, and has products in the market already), great management team, and clean balance sheet. Plus, Gild is cheaper than Mrk, pfe, amgn, biib from the pe standpoint. So IMHO, Gild is a solid long term play. Zangwei

Okay, I give up. You guys win. :wink:

I’ll take a starter position. Can you refer me to several of the best summary posts on GILD on the board?

Saul

4 Likes
10

Hi Anirban,

I know this is probably dumb or small “f” foolish, but I’m going to double the position size that PRO recommends for this starlet.

This reminds me of when AAPL was underappreciated (as you noted) and yet, was clearly a big winner. Most didn’t see it that way and that allowed those others to enter at very very cheap prices and for my part, with great conviction. For me, great conviction doesn’t happen often. AAPL is my largest holding and even though biomedical is a frothy sector, this stock does it for me, management wise, pipeline wise, doing good for humans, etc.

So I have chosen to increase my position size during what I think is a lull in the stock pricing system (an oxymoron), from the recommended PRO position of 3,7% to 6.2% while the stock is languishing under $100. (Of course, I financed part of the Call I bought with a few puts which will expire worthlessly Feb 20.)

Here’s what one recent article says:
PS 12 times TTM and sitting on a revenue gain in 2014 versus 2013 of 126%… I mean…to me this spells conviction.

Ken McGaha, Self-Made Millionaire (556 clicks)
Value, growth at reasonable price, newsletter provider, contrarian
Profile| Send Message| Follow (377 followers)
Bad News For Gilead Sciences Is Great News For Investors
Feb. 9, 2015 9:39 AM ET | 42 comments | About: Gilead Sciences, Inc. (GILD)
Disclosure: The author is long GILD. (More…)
Summary
Businesses with products essential to the life and health of their customers have a solid moat of protection around their earnings and continued innovation only enhances that protection.
Short term disappointing news from great businesses can create spectacular long-term opportunities for investors.
Gilead Sciences is not only grossly undervalued compared to the biotech industry, but to the S&P 500 as well.
Gilead Sciences (NASDAQ:GILD) is a biotech company that develops and markets drugs primarily used in the treatment of serious and chronic medical conditions such as HIV/AIDS, hepatitis B & C, pulmonary arterial hypertension and chronic angina among others. Once acquired, most of these maladies remain with the victim for life and require continuous medication and treatment to control or at least hinder. Many of these conditions used to constitute a death sentence; now they simply demand a long-term treatment regimen that Gilead’s products can provide.

While Gilead has been one of the great success stories in the biotech industry over the past 20 years, it is by no means resting on its laurels and reputation. In 2014, the company successfully launched its first oncology product, second HCV medication and completed regulatory filings for the next generation HIV medicine, E/C/F/TAF. This is a business with a lot of staying power and one that continues to innovate and develop new products for the future. Exactly the prescription to make it a compelling candidate for investment consideration.

Why Does The Opportunity Exist In Gilead’s Stock?
Gilead has built a phenomenal track record of growth in revenue, profits and share price over the past 10 years. On February 28, 2005, the shares traded as low as a split adjusted $7.59/share before embarking on a 10-year surge that carried the stock to its all-time high of $116.83 on October 31st of last year. This spectacular run would have turned a $10,000 investment into $153,900 in just 10 years. As of February 6th, the stock has retreated by 16.56% to $97.48 as the company has recently reported growth and earnings that failed to excite investors and new competition has appeared in some of the company’s key product markets.

When a business has had such a stellar run over an extended period of time, it does not take much to entice long-term shareholders who might already be anxious about protecting existing gains to sell at the first sign of trouble. Often this happens simply based on past performance of the stock price without much consideration given to current valuation and value propositions. That appears to be the case with Gilead; although, it is never truly possible to know the reasons behind the sell decisions of thousands, if not millions of individual shareholders. As a value based investor, my role is to assure myself that the current selling is not based upon any long-term impairment to the fair value of the business and that the current valuation is well below a rational assessment of the current real value.

What Is The Current Health Of Gilead’s Business?
Smart investment decisions are not made based upon the unknowable thinking process of others but through our own careful due diligence and evaluation of the facts surrounding the business. As stated in the opening, Gilead is facing some new competition in some of its existing markets but continues to be the market leader in the areas and is also receiving reassurance from insurers that its lead products continue to maintain their preferred status. This news seems to have been overlooked in favor of emotional pessimism and profit taking by short-sighted investors.

Further discrediting the currently bearish sentiment toward this business is the fact that the company’s 2014 revenue of $27.474 billion exceeds 2013’s total revenue of $10.804 billion by 126%. This is simply an amazing rate of increase for a business this size. Again, even though the company is expecting the growth to moderate somewhat, short of a total collapse in sales growth, the company is still maintaining an unbelievable rate of revenue growth even if it falls by 60% or 70%. With 2014 earnings of $8.11/share, as shown in the table below, Gilead is trading at an extremely low P/E multiple of 12 times trailing 12 months’ earnings. The low valuation of one of the biotech industry’s icons is exemplified when considering that the industry average P/E is 68.25. Furthermore, the price to cash flow multiple is a very reasonable 11.57 compared to the average of 46.68 for the biotech industry.

3 Likes