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Gilead's Hep C and HIV Prospects are Getting Healthier

01/25/2018 5:00 am EST

Focus: HEALTHCARE

John Buckingham

Editor, The Prudent Speculator

As we look ahead to 2018, the primary catalysts for last year’s rally—an improving economic backdrop, both in the U.S. and overseas, and healthier corporate profits — remain positive underpinnings, so we retain our optimism for equities, asserts John Buckingham, value-oriented money manager and editor of The Prudent Speculator.

That is not to say that the road ahead will be smooth, especially as volatility is likely to pick up and we are overdue for a 5% sell-off, a 10% correction or even a 20% bear market.

Nevertheless, with many of the fundamentally less expensive stocks in our portfolios likely to more strongly benefit from lower tax rates, we see no reason to alter our bullish long-term course.

And we like that history shows that Value strategies perform better in rising interest and inflation rate environments, while the valuation gap between Value and Growth is as wide today as it has been since the year 2000.

Gilead Sciences (GILD) is a biotech giant whose portfolio of products and pipeline of investigational drugs includes treatments for HIV/AIDS, liver diseases, cancer, inflammatory and respiratory diseases, and cardiovascular conditions.

In the fall of 2017, Gilead announced that it was adding to its stable of offerings by moving to purchase Kite Pharma, a developer and manufacturer of cancer immunotherapeutic products and therapies.

Shares were relatively flat in last year on concerns about drug pricing and increased competition for its top-selling hepatitis C drugs, which actually cure patients. Q3 EPS of $2.27 and revenue of $6.5 billion both exceeded analyst expectations, even as we know that near-term headwinds persist.

Still, we continue to believe that GILD offers attractive long-term upside. Even after the acquisition, we are fond of the solid balance sheet that allows management to buy back shares, and support and boost the dividend.

The biopharmaceutical giant also attended the JPMorgan Health Care Conference in London last week, with management offering enthusiasm for HIV therapies and seeing stabilization in hepatitis C therapy pricing.

We are pleased that hepatitis pricing is stabilizing, as it accounts for more than a third of GILD’s total revenue, and are encouraged by the company’s breakthroughs in HIV therapy, while the recent Kite Pharma acquisition looks promising.

Gilead reports Q4 earnings results on February 6. The shares trade for less than 12 times fiscal 2018 earnings estimates and yield 2.6%. We continue to be fans of Gilead Sciences and have moved our target price up to $124 per share.

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