Gilead Sciences Inc. (GILD)

(A Top Pick March 17/16. Down 26%.) This has been a tough name. He sold his holdings in February. Their hep C and HIV drugs have been under a lot of pressure from competition and lower drug prices.

(A Top Pick March 9/16. Down 24%.) He still loves this one.

Has been waiting for the stock to get down to a target price, which it has now reached. Closed at $64.62. His model price is $111.83, a 73% upside. Dividend yield of 3.2%. (Analysts’ price target is $76.50.)

His opinion on this is quite good. It has been under pressure for a number of reasons. A lot of these companies have been under pressure for pricing. There has been some speculation that some of their drugs have a lot of competition. They have an HIV drug. This looks so cheap at this time. He shows a 33% Return on Invested Capital. They used to have a 60%, but a 33% is still very good. The valuation is almost too good to be true.

This is under pressure. Technically, you have declining fundamental trends. It is trading at a reduced valuation compared to historical comps.

(A Top Pick April 21/16. Down 33.5%.) World’s largest provider of HIV medication. In the last 3-4 years, it became the market leader in providing hepatitis C medication, which actually cures the patient. It has a 13% free cash flow yield and trades at about 8X earnings with over a 3% dividend that will increase every year for the next several years. This is worth in the $90’s.

The company invented a drug that didn’t just help the patients, it cured the disease within 12 months. It would have been better business for them if they had invented a drug that merely made the disease better. A very profitable company, but he wouldn’t want to be an owner because revenues are going to be going down.

This has been one of his worst performers. His cost base is around $80. Trading at 8X this year’s earnings. He is going to give this one more quarter. We need to see their pipeline start to fill out and we need to see M&A coming to progression.

A biotech stock that screens very well. On a valuation and cash basis, it looks great. The problem is, there are really only 2 products that account for the bulk of their revenue, and they are coming on patent cliffs. This gives increasing competition, so there are dramatic declines in revenue generated by these drug franchises. The biotech sector has gone from being a darling in mid-2014 into a discount position. She hasn’t played the biotech space, just because she sees it as a binomial event.

This has a drug that actually cures people so that they don’t need the drug anymore, so it’s market is getting smaller by the day. They are sitting on a ton of cash, which at some point is going to be used to buy something. If you are prepared to wait, this is a company that is going to need to do something. A higher risk, so he wouldn’t have it in his portfolios.

A big winner for him for about 5-6 years, but when Hillary Clinton did her famous tweet, he sold his holdings. Their hepatitis C drug basically eradicated the disease. They have an HIV drug regimen that is turning out great results, but is expensive. It could be a great long term franchise for them. This looks really interesting, and would get back into the name on a break out. Trading at only 8X forward earnings.

One of the most controversial names in healthcare in the US. They have cured hepatitis C. Insurance companies in the US will only pay for the treatment if you have proof that you have hepatitis C. There is a lot of untreated hepatitis C still out there. Amgen as a competitive product that is almost as good. This is only trading at 6 or 7 times earnings and is probably pretty safe here. He would average into this.

Feels the market is discounting way too much on their hepatitis C drug. Because it is curing everybody, the growth rate in that drug keeps falling. He likes it at this range and it pays a good dividend. Trading at 7X earnings, incredibly cheap. Has a huge cash flow yield. They have a good balance sheet with lots of cash. Their HIV drug continues to do very well for them. Feels the market is giving zero value to their drug pipeline, where they have some very interesting products.

You hear about them being cash flow generators, but you have to remember cash flow is discounted. If interest rates are going up then the value of that cash flow is coming down, in today’s dollars. It does not fit into his process. You will be fighting interest rates for a very long time. If you get a basket of biotechs, it might work a little better.

Got out of this some time ago, given what was happening with their guidance with some of their drugs. They guided their 2017 guidance lower, even though they met 2016 expectations. He doesn’t see this recovering in the very near future. Their growth rate is flat for the next few years.