Stock of the Week
Nasdaq Symbol: GILD
Price as of 5/6: 113.26
With a sense of uncertainty looming over the market and analysts predicting a nearby correction, it's important to remember that this does not mean stash your money under your pillow. A common mistake that investors make is trying to time the market. The problem with that is you would have to time the market twice, when to get out and when to get back in. A smart investor focuses on finding reliable stocks that they can be confident won't fall when the market pulls back. How do you do that? A few factors that lead to a reliable stock pick include a strong balance sheet, solid valuations, and catalysts that lead to potential revenue growth. Gilead Sciences, a biopharmaceutical company focused on the treatment of HIV, liver disease, cardiovascular diseases, and respiratory conditions, stands out amongst competition based on this criterion.
First, Gilead's balance sheet shows that the management has been making moves to put the company in good financial standing. Gilead exhibits a return on assets of 44%, a return on investment of 45%, and a return on equity of 91%. This means that management has been successfully allocating resources, investing, and using contributed capital. Metrics like these can help investors see the financial security of the company, even during a pullback or correction. Even though the company has some debt, Gilead still sports a healthy current ratio of 2.70. These metrics show that management has been effectively keeping the company in a good position during an uncertain time.
In comparison to the healthcare sector, Gilead can even be considered undervalued. Even within the Biotechnology industry, Gilead exhibits lower price to earnings (13.03), price to book (9.93), and price to free cash flow (10.25) ratios compared to the industrial averages. A couple reasons for these lower valuations stem from recent acquisitions and price revisions in the company's hepatitis C drugs, Sovaldi and Harvoni. Since 2011, Gilead has acquired 5 other companies in the healthcare sector, giving it a larger market share and less competition. These acquisitions are focused on improving the company's future sales growth and balance sheets. Alongside that, the price cuts in hepatitis C treatments make the drugs more attractive to insurers.
These attractive fundamentals are complimented by Gilead's high sales growth (29%) and high EPS growth (39%) over the past five years. Gilead's growth does not look like it is going to stop anytime soon either. The company has submitted new drug applications to the FDA, reported promising results from drug studies, and had 7 FDA approvals for new drugs and treatments. Just to top it off, the company has begun paying a dividend of 1.50%.
Gilead's management has made the right moves to push the company's stock price higher. In spite of this uncertain market, Gilead still stands out as a value investment. Gilead is priced at 113.81, but has price targets up to $130, which it could soon surpass. Overall, Gilead may be a safe investment during a possibly slow summer market.