Consolidation Provides Good Entry Point for Top Biotech

Gilead Sciences (NASDAQ:GILD) —  I’ve found it productive to scan data in order to find stocks and sectors that have been swimming upstream while others become food for the bears. One such sector is biotechnology stocks, and Zacks noted the same phenomenon, concluding that the reason for the better performance is a steady growth of earnings and low dividend payouts (the government can’t tax what they don’t pay).

In September, GILD rallied to new highs after rival Bristol-Myers Squibb (NYSE:BMY) suspended its trial of a competing hepatitis C treatment. And last week, the stock gapped up to a new all-time high resulting from positive results from a study for its hepatitis C treatment.

Earnings estimates are for $3.86 in 2012 and $4.39 in 2013, and the mean 12-month price target is $81 based on an expected price-to-earnings (P/E) ratio of 18.5.

Technically, the stock is in an orderly bull market characterized by breakouts and breakaway gaps. Each breakout has resulted in a new high followed by a short-term consolidation. These consolidations provide new buyers with good entry points. 

On breakaway gaps it is best to try to buy at the halfway point of the gap since the stock usually doesn’t pull back enough to close the gap (for example, note the July and early August gaps). The trading target is $82, but longer term the stock could see much higher prices. 

Trade of the Day – Gilead Sciences (NASDAQ:GILD)
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Trade of the Day Chart Key

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