GILD

A Letter from the President

by

“We’re Valuentum, not value – and that’s all the difference in the world.” – Brian Nelson, CFA Dear member: We received a few questions on this topic and I wanted to help clarify the Valuentum process. We are the only investment research publishing company that systematically embeds a technical and momentum assessment into a robust valuation methodology, comprised of a discounted cash-flow process and relative valuation overlay. As you can imagine, the output of the combination can be quite confusing for anyone, for the pure technician as well as the pure value investor and everyone in between. First, we should note that our fair value estimates and fair value ranges are not price targets that you may see in brokerage … Read more

Gilead: What’s Your Long Term Thesis?

by

Shown: Pricing pressure continues to hurt Gilead’s gross margin; source: Gilead’s first-quarter 2016 presentation. We’re still sleeping better at night knowing that we avoided the first-quarter blowup at Gilead (GILD), “Gilead Disappoints, Harvoni Sales Drop 16% (April 2016).” Sales of Harvoni in the US dropped like a rock from the year-ago period, and as Gilead throws away its cash at buybacks to bolster accounting earnings per share, no longer does it hold the balance sheet it once did. Sure, something can be said about having ~$21 billion in cash, but it kind of loses its luster matched up with a similar amount of liabilities, as is the case with Gilead. Remember – it’s net cash that matters. To a large … Read more

Gilead Disappoints, Harvoni Sales Drop 16%

by

Image Source: Gilead By Brian Nelson, CFA “They” say nobody saw this coming, but then again not everybody follows Valuentum’s research and analysis. That’s a good thing. We were starting to doubt our de-risking maneuver in the Best Ideas Newsletter portfolio that we made in January, “Alerts: High-grading! GILD–>JNJ; EBAY–>FB (January 2016),” in light of Gilead’s shares recovering nicely along with the market advance. However, the hep-C giant’s first-quarter report, released April 28, looks like it will be the catalyst to bring shares back down to earth, fair or not. Given some of the comments/questions we’ve received in recent months, we think it is worth noting that since the January 29 transaction alert, shares of Johnson & Johnson (JNJ) have … Read more

The Market – On Its Head

by

By Brian Nelson, CFA The sector/theme returns have almost been turned on their head as some of the worst performers in the first few weeks of 2016, namely materials (XLB), energy MLPs (AMLP, AMZ), and energy (XLE), have transformed into leaders through the latest data update, April 21. As we outlined in “Alerts: Adding More High-Quality Exposure, (April 2016)” the dividend “track record” growth craze is on, in our view, and yield-rich exposures from utilities (XLU) to the dividend-growth focus itself (SDY) have rallied more than 9% in the year thus far. The metals gold (GLD) and silver (SLV) have also proved to be good trades out of the gates thus far in 2016, up ~18% and 23%, respectively, though … Read more

What Gilead’s Patent Miscue Means for Shareholders

by

Source: Gilead Sciences Corporate Fact Sheet (pdf) By Brian Nelson, CFA There’s nothing quite like market instincts. They can’t be taught from reading textbooks, in the classroom, in a valuation model, or even with years and years of experience. It’s the intangibles that sometimes count the most. When we removed Gilead (GILD) from the portfolio of the Best Ideas Newsletter, “Alerts: High-grading! GILD–>JNJ… (Jan 2016),” we just knew something wasn’t right. Sure the introduction of Merck’s (MRK) once-daily single-tablet combination therapy, Zepatier, a significantly less expensive therapy to Gilead’s prized hepatitis C franchise was one major concern at the time, but the market is often not this inefficient when valuing equities. Almost counterintuitively, it became worrisome to us that for … Read more

The Corporate Buyback Conundrum

by

The above is a trailing 15-month chart of the broad market index, the S&P 500 (SPY). As you can see, the markets have gone nowhere fast. The fallout in the energy complex coupled with emerging market uncertainty and political unrest in the US is making for quite the choppy market environment. Interestingly, however, since the middle of last year, the Best Ideas Newsletter portfolio has quietly been distancing itself from this broad market benchmark, as strong performance from constituents coupled with a larger cash position in a generally weaker market have paid off. Where indexers focus on controlling costs instead of focusing on generating strong returns with relatively low turnover (and commission and tax implications), the strategy powering the Best … Read more

Key Treatment Momentum Drives Big Pharma

by

The momentum of key drugs and treatments is often a solid indicator for the coming performance of a pharmaceutical firm. Growing competition and other market pressures out of a company’s control can often cause material ebbs and flows in financial performance, making a strong and stable pipeline necessary to sustained success. As we walk through the results from some of the biggest names in the pharmaceuticals industry, let’s get a feel for the trajectory of each firm’s drug portfolio and pipeline moving into the rest of 2016. AbbVie (ABBV) AbbVie reported a quarter of strong growth January 29, as adjusted net revenues jumped more than 24% on an operational basis, and GAAP net revenue increase more than 17% from the … Read more

Your Hard-Earned Money

by

By Brian Nelson, CFA It was Thursday afternoon, February 11, crude oil prices just hit a 13-year low, and the S&P 500 (SPY) was about to break below key technical support. Then, just as the markets were to fall further, rumors again emerged that OPEC may be scheduling a meeting to curb crude oil output, driving crude oil prices from the depths and the market higher off technical support. A barrel of crude oil continues to trade below the $30 mark, but it was quite the “save.” From where we stand, the market hasn’t been this fragile than at any time during the past decade or so, including during much of the Financial Crisis. Optimists may be whistling past the … Read more

Early Read: Gilead Guides Revenue to Decline in 2016, Below Consensus

by

Gilead’s (GILD) fourth-quarter report came and went, and it was just fine. Strong revenue and earnings growth and phenomenal free cash flow generation were all the rage in the quarterly press release. It even announced a new $12 billion share buyback program and upped its dividend 10% starting in the second quarter. We love the company that cured hepatitis C (“hep C”), but we no longer include it in the Best Ideas Newsletter portfolio. No quarterly report could ever cure our biggest concerns.   To put it straight, Gilead’s outlook for 2016 is nothing to write home about, and the probability of intense pricing competition in its blockbuster hep-C franchise taking its toll in 2017 and beyond is something even … Read more

Google…Ahem…Alphabet!

by

“A falling stock price doesn’t mean the stock is cheaper; it doesn’t mean that the stock will go back up; and it certainly doesn’t mean that the stock can’t fall further. In some cases, a falling stock can become more expensive as it drops, if its value falls by a greater amount.” – Brian Nelson, CFA The company formerly known as Google, Alphabet (GOOG, GOOGL), is surging in after-hours trading February 1. As a result of Google’s stock split in 2014, we include both share classes (non-voting Class C, GOOG, and Class A, GOOGL) in the Best Ideas Newsletter portfolio, collectively one of its largest holdings (5%+). Alphabet, then known as Google, first registered a 10 on the Valuentum Buying … Read more