The company must have got the message

I'm definitely wrong about Gilead (GILD), the leading biotech company regarding its bottom. I was thinking around $80 when I wrote about it in Jul last year would be its bottom of the ongoing correction. Unfortunately it continues to disappoint the Street and the passing week, it posted another dismal earnings. It has dropped another 20% for the bad news. It is of course really a pain for shareholders, especially if the expectation is for some short term return. But for long term, I still hold a lot of hope for GILD. After all, it is still one of the most successful biotechs in the world and is still generating tons of cash quarter after quarter. As I said, it is just a victim of its own success as the huge windfall from its hepatitis C drugs has raised up the expectation for it to an unbelievably high level. It is just now sustainable for any companies to continue to meet ever increasing expectations when the hope is too high. No exception for GILD.


Now after a hair cut of almost 50% from its all time high, GILD becomes an incredibly deep value stock. Given how much money it can generate from its existing portfolio, it won't go anywhere fundamentally. It is still a cash cow with P/E just about 6 and is having an enormous amount of cash in the book around $5 billion. The biggest problem for GILD is the concern about its lack of promising developmental candidates. I believe the company management has clearly got the message that it needs to do something with its cash hoard to boost its portfolio. One recent hiring could be a sign that it may soon make a move to buy something in the oncology business. A couple of months ago, they hired the formal global head of Oncology Clinical Development and Medical Affairs from Novartis. Currently GILD has virtually nothing interesting in this area. Could it mean that GILD may be thinking to do some bolt-on deal in oncology, especially the hot area of immune-oncology? I bet this is very likely. If that happens, it may become an important catalyst for it to run again. After all, it is such a deep value stock and at this cheap level, I'd think the downside risk is much smaller now. Of course I'm not saying it is the time to back up trucks to buy. Short term it can still be very volatile. But if you are a value investor with a long term horizon, starting to accumulating GILD shares could be a good idea. It is also paying you to be patient with a respectful dividend yield. Its tech pattern is also telling a bullish story. Even after such a huge selloff, its weekly chart is consistently showing a bullish positive divergence with MACD, suggesting the long term momentum is behind it for moving higher.