While Gilead Sciences (NASDAQ:GILD) appears to have a possible treatment for COVID-19 in remdesivir, which is good news for owners of GILD stock, we are still miles away from knowing who the winners will be in the 2020 version of the Gold Rush.
One of the things I’ve stressed in these difficult times is that investors have options. You don’t have to bet on the latest-and-greatest vaccine or treatment for the coronavirus.
With or without remdesivir, Gilead remains a smart play now and in the future.
Here’s why.
Why GILD Stock Is a Smart Play Now
Gilead originally developed remdesivir for the treatment of the Ebola virus and other contagious diseases. It was never approved for human use. However, what it learned from the previous development process made the company think it might work against COVID-19.
In Europe, the World Health Organization is running clinical tests on patients in both Spain and Norway. While the potential is real, there are no guarantees that remdesivir will work effectively on large quantities of people.
Over in Wuhan, the epicenter of the coronavirus, Chinese scientists have been testing the drug treatment on COVID-19 patients with both mild-to-moderate and severe symptoms. They’re expected to have initial data on the trial in April.
In the U.S., the National Institute of Allergy and Infectious Diseases is funding a controlled trial being conducted in Omaha at the University of Nebraska Medical Center. Anthony Fauci, the NIAID’s director, appeared on several national news programs on March 29, suggesting that the clinical trial is continuing, but little beyond that information.
On the same weekend, Gilead CEO Daniel O’Day released an open letter to Americans, discussing remdesivir.
“Remdesivir is still an investigational medicine. We are planning for the outcome we all hope for — that it will prove to be a safe, effective treatment — and in the meantime we are taking the ethical, responsible approach to determining whether that is the case,” O’Day stated.
My InvestorPlace colleague, Dana Blankenhorn, recently suggested the company believes it will have a solid understanding of remdesivir’s safety and efficacy by the end of April.
Since Gilead has the financial muscle to get the drug treatment out to patients in a relatively quick manner, if you’re looking for a short-term play, GILD stock makes as much sense as many of the other potential seekers of gold.
Why Gilead Is a Smart Play in the Future
When it comes to investing, one financial metric I can always count on is free cash flow. Companies that generate gobs of free cash flow tend to have stocks that outperform the markets as a whole.
It’s no surprise, then, that Gilead is one of the top 10 holdings of the Pacer US Cash Cows 100 ETF (BATS:COWZ), an ETF that invests in stocks with above-average free cash flow yields. The average FCF yield of the 100 holdings in COWZ is 7.93%, more than double the Russell 1000.
As my colleague points out, Gilead will have more than $20 billion in cash and short-term investments after paying $4.9 billion for Forty-Seven (NASDAQ:FTSV), a company focused on cancer drugs.
At the end of fiscal 2019, Gilead had $8.4 billion in free cash flow. That’s an FCF yield of 8.8% based on an enterprise value of $95.8 billion. I consider anything over 8% to be a value play.
The Bottom Line on GILD Stock
If you take what Gilead has in the pipeline and add remdesivir to the mix, I’m not sure why you wouldn’t want to own it for the long-term.
I’ll grant you, GILD stock hasn’t performed extraordinarily well in the past few years — it’s got a five-year total return of -3.0% compared to 6.2% for the U.S. markets as a whole — but as we go through a very difficult 2020, owning shares in a company whose financial situation is rock solid ought to be attractive to a wide swath of investors.
Gilead, in my opinion, is a long-term buy.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
