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This morning, I am recommending a bullish trade on Gilead Sciences, Inc. (NASDAQ:GILD), the biopharmaceutical company.
GILD is struggling after an analyst at Goldman Sachs downgraded the stock to a “sell,” but I think it can recover from the recent drop.
The company has a lot of international exposure, but the fundamental and technical picture look strong. The downgrade gives us a good opportunity to generate income with a put write.
Strong Earnings Could Carry GILD Through
As I mentioned above, GILD has a lot of international exposure. With operations in Asia, Europe, the Middle East, Australia, Africa, North America and South America, the stock will be affected as the global economy slows down.
GILD’s last earnings report was mixed. According to Zacks, the company beat earnings per share estimates and missed revenue estimates. However, in its guidance, GILD didn’t lower its expected net product sales.
Just after this earnings report, investors pushed GILD higher, meaning the small revenue miss wasn’t as much of a concern as you might think.
Despite that mostly positive earnings report in early May, GILD fell after analysts downgraded it yesterday. In the past, I’ve noted that earnings are an indication of past performance, and therefore, they don’t necessarily predict success in the present.
But a strong past performance also gives us an idea of how capable a company is of recovering from bad news, and GILD’s fundamental outlook gives me confidence that it can push through the slowing economy.
Support Just Under $62
If we look at the daily chart for GILD, we see that the stock dropped below its 50-Day moving average (MA) after the Goldman Sachs downgrade yesterday. That puts it below both it’s 50- and 200-day MA, which is concerning.
Daily Chart of Gilead Sciences, Inc. (GILD) — Chart Source: TradingView
But we also see that GILD recently tapped the $63 level and successfully stayed above it. It’s too early to say, but $63 could act as support going forward. Even if it doesn’t, the stock’s next lowest support level is around $62.
GILD has performed well enough to weather a bad outlook from some analysts, and we can collect income by selling put writes while it’s down. If we pick a put that is farther out of the money, we can limit our risk while taking this bullish position.
Sell to open the GILD July 5th $59.50 put at about $0.55.
Note: There are several July expirations available for GILD options. Be sure you are opening the weekly options that expire on Friday, July 5, 2019.
About Naked Put Writes
A naked put write is a bullish position in which you expect the price of the underlying stock to increase. If naked put writes are a new strategy for you, find a primer on how to execute them and how they profit here.
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Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.