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 
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
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