This Stock is Priced to Move

One of my main aims here is to give you an alternative to the racket that is so much a part of mainstream financial thinking.

And as it happens, not all of the noise emanates from Wall Street.

From time to time the folks in Washington add their feeble voices to the chorus of righteous error and bad advice you’d do well to ignore.

I’m here to help you ignore it – and to replace with it with something better that makes you money.

[ad#Google Adsense 336×280-IA]Today I want to tell you all about one especially odious episode.

It’s the tale of how a “concerned” legislature caused the stock of one biotech company to plunge by double digits virtually overnight.

Lucky for us, this story has a happy ending.

Because the company involved has rebounded handily – and is poised for even more growth in the months ahead.

Here’s what you need to know…

Mr. Waxman Goes to Washington

Sometimes Washington’s shenanigans trigger a stock move that can hand us outsized gains.

And that’s exactly what happened with Gilead Sciences Inc. (Nasdaq: GILD).

In March 2014, U.S. Rep. Henry Waxman (D-CA) lashed out at the cost of Gilead’s newly approved hepatitis C (HCV) drug, Sovaldi. A full treatment of Sovaldi runs $84,000, or $1,000 a pill.

But Waxman missed the obvious. Sovaldi (and its newer version, Harvoni) cures 90% of HCV patients. That means nearly all patients can avoid the need for a liver transplant – an operation that runs $250,000 if an organ donor is found. And that liver transplant price tag doesn’t include antirejection drugs and antibiotics recipients must take for the rest of their lives.

Still, Gilead sold off on fears that its high cost would scare Medicare into looking for another HCV-drug maker that offered a less expensive solution. The stock lost 13% of its value in a matter of days.

Once again, Wall Street was dead wrong.

Medicare spent $4.6 billion on hepatitis C treatments in the first six months of this year. That’s almost as much as the agency spent in all of 2014. Gilead accounted for 66% of all covered prescriptions.

And since April 2014, Gilead shares have soared 66.5% – more than four times the gains of the S&P 500 Index.

Simply put, Gilead dominates the HCV sector. And as you’re about to see, opportunities for the firm are growing.

Gilead’s HCV Domination

Hepatitis C is known as a “silent killer” because it often takes many years for symptoms to emerge. In the worst case, the body can’t fight the blood-borne infection, which begins to destroy the liver, causing cirrhosis or cancer.

According to the World Health Organization (WHO), 130 million to 150 million people globally have HCV, including up to 3 million here in the United States. Between 350,000 and 500,000 people die each year from HCV-related causes.

The Centers for Disease Control and Prevention (CDC) recommends that every one of the nation’s roughly 76.5 million baby boomers get tested for HCV. Federal officials are worried that many got the disease through contaminated blood supplies.

Gilead’s pair of HCV products make up about 60% of its revenue and brought in $4.8 billion in revenue in the third quarter. Overall, the products generated $12.5 billion in 2014 and $9.5 billion in the first six months of 2015. That makes Sovaldi and Harvoni among the most successful new drugs ever launched.

And Gilead’s value goes beyond just those two products.

Deep Pipeline = Big Profits

On Oct. 28, Gilead sought U.S. Food and Drug Administration (FDA) approval for a combination of drugs that would provide an effective treatment against all six HCV genotypes.

And that’s not all.

The company has a deep pipeline of new products that should generate more sales for years to come.

Consider this.

In the field of AIDS/HIV, the firm has completed Phase 3 clinical trials on three new compounds. It is seeking approval to market two of them in both the United States and Europe while the third is focused on American patients.

Gilead also has three new drugs in Phase 2 clinical trials for the treatment of hepatitis B.

In the cardiovascular field, it has one drug in Phase 3 trials and two more in Phase 2.

Gilead has 11 drugs under development for blood diseases and cancer and seven more covering respiratory problems and anti-inflammatories. In all, the company has roughly three dozen drugs in its pipeline.

And the company is well placed to extend its reach even further through acquisitions. It has more than $16 billion in cash on hand and recently raised another $10 billion through a bond sale at low interest rates.

This is a company that clearly cares about shareholder value. In the third quarter, it produced $4.1 billion in operating cash. It bought back $3.1 billion of its stock and paid cash dividends totaling $627 million.

Despite those stellar financials, Gilead’s shares are still undervalued.

In the third quarter, revenue grew 37% from the year-ago period to $8.2 billion, beating forecasts. Net income rose 70% to $4.6 billion.

The stock is priced to move. It has a price/earnings-to-growth (PEG) ratio of just 0.54, almost half the “fair value” ratio of 1. It trades at just nine times forward earnings, less than half the S&P 500’s ratio of 18.7.

Gilead stock currently sells for $108.33, giving it a market cap of $160.04 billion. It has 67% operating margins and a 100% return on equity.

Gilead is one stock you’ll be glad you own, despite what the grandstanders and “know-nothings” in Washington would have you believe.

— Michael A. Robinson


Source: Strategic Tech Investor