Growth and Value Stocks: Round 4

 

Stock Market Video

Growth and Value Stocks: Round 4

This Week's Fortune Cookie

In Case You Missed It

In this week’s Stock Market Video I note that the markets are all behaving well, with growth indexes like the Nasdaq outpacing the Dow. Investors are hungry for growth. I also look at several strong stocks in the energy sector and a couple of Chinese favorites that are in strong uptrends. Click below to watch the video!

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Growth and Value Stocks: Round 4

The fourth company on my list of stocks that share growth and value characteristics is Gilead Sciences (GILD), a California company that was founded in 1987. Gilead is big (market cap of over $98 billion and annual sales of $10.3 billion) and has a robust list of marketed drugs, but its signature product is a single-dose pill for the treatment of HIV/AIDS.

The value guidelines on GILD have been left far behind by the stock’s strong performance in 2012 and 2013. According to the stock’s entry in the list of Top 275 Value Stocks in the October issue of Cabot Benjamin Graham Value Investor, GILD was a good value buy up to a price of 34.28 (the Maximum Buy Price) and should have been sold when it hit its Minimum Sell Price of 44.60. Using these guidelines, the last day a value investor could have bought GILD was Friday, November 9, 2012, when it closed at 32.5. The stock opened above 36 on the following Monday and hasn’t looked back.

GILD nipped above its Min Sell Price on February 25, 2013, which was the signal for value investors to hit the “SELL” button. According to Roy Ward, the head analyst at Cabot Benjamin Graham Value Investor, it’s now considered overvalued. End of value story.

But for growth investors, like the ones who read Cabot Top Ten Trader, GILD was only looking better and better. The stock was written up in Top Ten three times in 2012 at split-adjusted prices of 28 (February 13), 33 (October 1) and 37 (November 26, soon after the stock outran its value Max Buy Price).

In 2013, GILD has been featured in Top Ten three times, once in April, again in May and another in September at prices of 47, 54 and 61, respectively. The stock took a run at 65 in September and has just moved above that level after correcting to below 60 during the October 8 Mini-Meltdown.

Here’s what Cabot Top Ten Trader had to say about the stock in its September 5 appearance.

Gilead Sciences (GILD 61)
Why the Strength

Gilead Sciences has seen lots of activity since it last appeared in Top Ten in early June. Gilead, which specializes in developing and marketing HIV/AIDS treatments, reported second-quarter earnings on July 25, blowing past Wall Street’s expectations. For the quarter, the company posted a 15% year-over-year rise in revenue due to strong sales gains for its core anti-viral HIV treatments. Digging into the report shows that product sales grew 14%, driven by a 20% surge in U.S. sales and a 4% rise in European sales. Outside of the strong quarterly figures, Gilead was also bolstered by news that the FDA placed a partial clinical hold on Vertex Pharmaceuticals’ hepatitis C drug, VX-135. The setback was seen by investors as a boon for Gilead’s competing medication, sofosbuvir, which the company gained control over in 2012 after purchasing Pharmasset for $11.1 billion. Sofosbuvir has shown great promise in Phase II trials, curing 95% of all cases when combined in treatment with ledipasvir. Because of this, the FDA granted sofosbuvir’s New Drug Application priority review, placing the hepatitis C treatment on a fast track market. Gilead filed its NDA for sofosbuvir on April 8, and the FDA has set a target review date of December 8, though there is an advisory committee hearing for the drug slated for October 25.

Technical Analysis

After gaining more than 100% in 2012, GILD is again powering ahead this year. The stock rallied steadily along support at its 10-day and 25-day moving averages through May, topping out just shy of the 60 level. Succumbing to broad market weakness, GILD retreated to support at its 25-week moving average in June, and quickly recovered. Shares have since bested former resistance at 60, driven by strong second-quarter sales growth. GILD is currently consolidating into support at its 10-day moving average in the 60 region. It looks buyable around here.

Suggested Buy Range 59-61
Suggested Stop-Loss 54-55.5

The appeal of Gilead Sciences to investors is obvious. The company has a booming business, with after-tax profit margins topping 30% the in second quarter. And there’s a robust pipeline of drugs in clinical trials for primary approvals and expanded uses.

To my mind, its shared value and growth characteristics is the equivalent of a product getting both the Good Housekeeping Seal of Approval and a certification from Underwriter’s Laboratory.

In the short run, GILD has advanced beyond both its value and growth buy ranges, but investors continue to push the stock to new highs.

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Here’s this week’s Fortune Cookie. Remember, you can always view all previous Fortune Cookies here and Contrary Opinion buttons here.

Tim’s Comment: And hindsight is 20/20. However, if you can use hindsight (precedent analysis) to apply the lessons of the past to the conditions of the present, you can be a successful investor. In fact, that's how all Cabot’s analysts do it.

Paul’s Comment: When I talk to investors, I often hear a real note of anguish in their voices that they didn’t buy something last week that’s rocketing higher this week. If I ever find out how to buy a stock 10 days ago, I’ll let you know. In the meantime, the best we can do is listen to what the market tells us to do and do it … now.

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In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, there are links below to each issue.

Cabot Wealth Advisory 10/14/13—Columbus Day and a Great Solar Stock

In this issue, Tim Lutts, the analyst who runs Cabot Stock of the Month, looks at the history and heritage of Christopher Columbus, reflects on his recent trip to Northern Europe and IDs a great solar stock. Stock discussed: You’ll have to click to find out!

Cabot Wealth Advisory 10/15/13—Profit from Insider Trading

Jacob Mintz, the options whiz behind Cabot Options Trader, writes in this issue about how to use surges in options volume to find profitable trades. Using Order Flow Reading software, Jacob can recommend great opportunities with low capital exposure.

Cabot Wealth Advisory 10/17/13—Interview with Mike Cintolo

In this edition, I interviewed Cabot’s VP of Investments, Mike Cintolo, digging into his history, his stock selection methods, his rules for buying and selling, what he watches in the market and his outlook for the future … and, of course, the Red Sox and Patriots.

Have a great weekend,

Paul Goodwin
Chief Analyst of Cabot China & Emerging Markets Report
and Editor of Cabot Wealth Advisory

Related Articles: 

Growth and Value Stock #1

Growth and Value Stock #2

Growth and Value Stock #3


Paul Goodwin can be found on Google Plus.

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