Gilead Sciences Inc. (GILD)

(A Top Pick Dec 10/14. Down 20.17%.) Just reported and had an excellent, excellent quarter. Had the best year in history. This would be his top pick in the biotech area. Trading at a crazy 6X PE despite having reported the best year in history. The global leader in HIV medication and hepatitis. Has just gone through the most successful drug launch in history. Trading at only 6X earnings.

Prefers MRK-N as it is safer. There is concern with drug pricing. The pharma index has been under pressure.

A large cap, very well diversified, good company. They have a good pipeline. He likes them. Good free cash flow. Management is good at deploying cash flow. The biotechs are surprisingly interest rate sensitive. The discounting model is inherently interest rate sensitive. You will be going into a series of periods of uncertainty as to whether the Fed will raise rates or not.

It has struggled lately. Biotechs have gotten themselves in the crosshairs of the Democrats and the Republicans. GILD-O makes a number of great products including the HEP-C cure. It saves lives cheaper than a liver transplant. It is down to 7.5 times earnings and that is low for a company with their pipeline.

He is not a huge fan. He sees some risks. It trades at an attractive rate because it has some attractive drugs. But there is competition coming up on the horizon. The drugs are expensive. HEP-C is a $90K cure. Because it is a cure, the market is shrinking. It would do extremely well if it could do a strategic acquisition and broaden their offerings.

Lately rotation has been out of biotech and healthcare sectors. This is trading at just under 8X forward earnings with a very good double digit long-term growth rate. There have been concerns about pricing. If the Democrats get into the White House, the question is how will that affect biotech companies and drug pricing. He still likes this. There are concerns that it has fallen below the 200 day moving average. If there is an opportunity to Sell here and Buy back later, he will be considering it.

It is probably riskier than some others in the sector. They don’t have much in the pipeline so people worry where the growth is going to come from. He would buy the IBB-Q ETF. It is a safer way to get the growth in the sector. GILD-Q is cheap for a reason.

Gilead Sciences (GILD-Q) or Celgene (CELG-Q)? From an earnings forecast revision standpoint, this one is going up while Celgene is going down, so if you had to pick between the 2 on an earnings revision basis, you definitely have more tailwind with this one. They both have good pipelines, both good companies. This is highly interest rate sensitive because it is a huge cash flow business and is all discounted cash flow in Pharma and biotech, and you have to be very careful when going into a rising rate cycle with serious cash flow and discounting type structures. He is positive on the company, but is watching very carefully.

He is cautious on this one. Their primary drug treated Heb-C and made up a very large part of their revenues. This is a cure for Hep-C and he worries that the future of the market diminishes with the cure. It is an expensive drug, about $100K per cure. Some competition is coming along with competing drugs. The market is discounting future cash flows and is telling investors it is worried too. The worry could go away, but he would heed the market’s opinion and keep only a portion of it in the portfolio.

(Top Pick Dec 10/14, Down 1.09%) Global leader in HIV medication as well as Hepatitis. It is a super cheap stock even though earnings and free cash flow continue to rise. Hillary’s comments have hurt it. They bought back a ton of shares.

Stock has done very, very well, but in the last 6 months it has been a bit of hair pulling. Every quarter comes out and the results are better than the previous quarter and better than the previous year, and yet the stock is trading at less than 10X earnings. There are still a lot of things in the pipeline for the earnings growth to continue.

We had a biotech wreck. This one is barely down at all and report earnings tomorrow. It is one of the largest positions in his US Value 50 portfolio. 58% upside is his current prediction.

(Top Pick Sep 10/14, Down 1.55%) This is a really well run company. They are the global leader in HIV and Hepatitis medication. It had been growing a lot over the last year. Now the market worries how big and durable the hepatitis market is. They had the world’s most successful and largest drug launch in history.

(A Top Pick Oct 28/14. Down 5.12%.) This has almost moved completely sideways from when he made the recommendation. Going to own this for a long time.

His model price is $167, a 60% upside from here. This has had a pullback from the last time he was on ($119.07 on June 6, 2015), and he likes pullbacks. It has come back to his EVB+7, his structural line which gives it support. It had huge volatility and this had downside, but it snapped right back, which he likes to see.