Gilead Sciences


Ticker: GILD, Buy below $90.

Why I Would Buy

  1. Extremely Cheap – Trades at less than 8 times forward price-earnings ratio.
  2. Strong Ratings Consensus – S&P 5 stars, 5 stars, Morningstar 5 stars.
  3. Tremendous Returns on Equity – Greater than 25% RoE for each of the past 5 years:


  1. Outsized R&D Spend Gilead has consistently spent a very large percent of revenues on R&D. High R&D spending correlates to strong future growth rates:


  1. Miniscule Dividend Payout Ratio At less than 10% of earnings, this is an unbelievable metric for a stock yielding more than 2%.

What Could Go Wrong

  1. Reversion to Mean – Revenues are up an astounding 300% during past 3 years; this is a highly anomalous growth rate. Such aberrant growth rates can skew valuation metrics and probably create an illusion of value where one may not exist.
  2. Revenue Concentration Most of the revenue growth came from HCV (Liver disease) medications, which went from near 0% revenue contribution in 2013 to more than 50% in 2015. Merck and other players are beginning to prey upon on this monopoly that Gilead has been enjoying.
  3. Market Wisdom – Market has beaten this stock down to ridiculous valuations — the wisdom of the crowds cannot be dismissed lightly.

Please read disclosure here before taking any action based on this post.