What is an undervalued miracle drug stock?
In 2002 I was doing biotech stock analysis for ChangeWave Research and writing reports for institutional investors greedily looking for the next “miracle drug.”
I asked our research wonks to find the next biotech companies that would see their drug fail in trial. Yes, fail.
We went six for six.
I then asked them which companies would see their drug trials succeed.
The miracle drug stock
Up came Gilead Sciences (NASDAQ: GILD) … the “Miracle” drug stock.
Today I consider Gilead to be the best-managed biopharmaceutical company in the world.
It is the leader in treatments for HIV and hepatitis C (HVC), but sales of these massively successful drug franchises have struggled in 2018 due to competition, rationing of the drugs by insurance companies and, in the case of HVC drugs, a smaller patient pool due to their high cure rate.
And that slowdown in growth has hit the stock over the last two years.
Gilead Sciences is on its way back
I believe revenues for Gilead will start to stabilize and investors will come back into the stock. There are a few reasons for this belief.
First, Medicaid is likely to be expanded in at least five states next this year. That will significantly increase the patient population served by Gilead’s HCV and HIV treatments.
Second, there is tremendous potential for Kite’s CAR T-cell cancer therapies. Gilead acquired the developer of cancer immunotherapies last year.
CAR T-cell therapies involve using a person’s immune system to beat back cancer, typically in patients with advanced blood cancers. In the simplest terms, a patient’s blood is extracted, genetically engineered and then re-injected. You can imagine the complexity that goes into making this a reality.
One of Gilead’s CAR T treatments has already been approved by the FDA, and more are in trial. Revenues are a pittance right now, but I see that changing in 2020-2021.
This is well within the time horizon for biopharma investors, who often take a 5-10-year view of a company and stock.
Gilead the stock
GILD the stock is quite cheap. While the stated trailing P/E is close to 60, this includes the tax hit when the company repatriated cash from overseas. Once that is removed, the forward P/E is closer to 10, which is less than half the current P/E for the S&P 500.
Finally, the stock is trading in the mid 60’s and even with today’s against-the-grain sell-off, shares have held that level.
I see GILD climbing into the $75-$85 trading range in the coming year. That makes it a great company to own shares of stock and sell covered calls against.
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About The Author
Michael Shulman is a 30 Year Veteran of the financial markets – as a trader, a financial analyst, a financial writer and most recently as an educator.
Mr. Shulman made his first option trade in 1985 – COMPAQ Computer calls – a position that expired worthless. His second trade broke even; the third brought him a year’s salary, a near twenty to one return on his investment. He entered the financial publishing business formally in 2001 as director of research for ChangeWave Research’s institutional research business. He also was the senior writer and editor of Hedge Fund Investing.
Michael has published two books – Sell Short and Made in America – both of which can be found on Amazon.com, and he is a frequent contributor to reputable financial sites like Seeking Alpha, MSN, MainStreetInvestor, and Traders Reserve.
Selling Options Expert
Since 2010, he has dedicated himself to teaching investors how to get more income from their portfolios using simple yet safe options selling strategies which produce income every week. This approach was developed from the ground up in Mr. Shulman’s own accounts. His goal to develop a strategy that cannot be replicated by institutional investors of any size and therefore independent of fads and trends that change too often to provide a consistent approach for individual traders.
His trade recommendations in his Options Income Blueprint, Perpetual Income Portfolio Club and Income Masters services maintain a 98% success ratio producing the expected income 98% of the time. No one’s perfect.