Tuesday, October 21, 2008

Gilead (GILD) Thrives Despite Downturn

Investors who own good, or even great, companies right now are often feeling bad about their investments because stock prices are low even for these companies. As far as I can tell, while some low stock prices are needed to factor in the troubles of the economy, in the case of great companies this is purely due to liquidity issues. People who know they own valuable stocks that should be kept because of their current value and future potential are being "forced" to sell them to maintain their own liquidity. Also, money flows into the stock market on a comparison basis; it will tend to flow into the (perceived) best bargains of the moment.

Gilead Sciences (GILD) showed it is a great company for shareholders when it reported on its third quarter on October 16, 2008. It is one of the most successful biotechnology companies because it developed and sells great antiviral products that target HIV infections and hepatitis. These drugs are not dispensable; people who need them buy them even in economic downturns. In addition, Gilead's drugs continue to replace competitors' drugs in these spaces.

Q3 revenues tell the story pretty well. They were $1.37 billion, up up 7% sequentially from $1.28 billion in Q2 and up 29% from $1.06 billion year-earlier. Earnings per share (EPS) were $0.52, up 13% sequentially from $0.46 and up 24% from $0.42 year-earlier.

There is no need to worry about liquidity at Gilead. They are sitting on top of $3.26 billion in cash and equivalents. Operating cash flows were $555 million for the quarter.

See my Gilead (GILD) analyst conference summary for Q3 2008 for more details.

Fortunately, I am not overextended and am gradually adding to my portfolio. It almost feels like stealing. After years of watching hedge fund managers tell the world what hot shots they were when all they were doing was leveraging credit into ordinary investments, picking their pockets while they are down feels pretty good. You can almost correlate how much of a stock was owned by hedge funds by viewing its price percentage decline this last year.

I own Gilead as part of a long term strategy. My one suggested change for management would be that they start paying a dividend. I prefer that over stock-buy backs. Dividends allow me to choose to diversify, or to take income, without having to sell stocks and pay capital gains.

Biogen Idec reported some very impressive results today. You can get a good picture of the current state of the company at me Biogen Idec (BIIB) analyst conference summary for Q3 2008.

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