Gilead Sciences (NASDAQ:GILD) has been a leading candidate to find a treatment for the novel coronavirus. But you wouldn’t know that by looking at shares of Gilead stock.
Short of Gilead closing above $69.53 on Aug. 31 — up about 7% from current levels — the stock will have registered its fourth straight monthly decline. It has now declined for six straight weeks and in 21 of the last 29 trading sessions.
It has been a little bit of a rough patch for this well-established biotech company. But that doesn’t mean investors should throw Gilead stock to the curb. In fact, just the opposite. They should be looking at the stock’s selloff as an opportunity.
Gilead vs. Coronavirus
Gilead is among a handful of companies working on a treatment for Covid-19. Its remdesivir treatment is a leading potential candidate to make it across the finish line, so the selloff is somewhat surprising.
It’s clear that the coronavirus isn’t going anywhere. While much of the economy has recovered from the lows, many businesses and sectors are still in pain. In other words, a vaccine and treatment will likely be necessary (and is in the world’s best interest) to come sooner rather than later.
According to a recent article on InvestorPlace by Larry Ramer,
Moreover, those ‘treated with the antiviral drug for up to five days demonstrated significantly higher odds of improvement in certain areas, such as whether or not they needed supplemental oxygen, as compared to patients given standard treatment.’
Ramer goes on to point out that, “the media has chosen to emphasize that, after 11 days, those who received the drug for an average of six days did not show a statistically significant improvement versus patients who were not treated with remdesivir.”
At the end of the day, there’s no guarantee that remdesivir will be the go-to choice in the treatment for coronavirus. But does the stock deserve to be trading at essentially pre-coronavirus levels?
Absolutely not.
Breaking Down Gilead Stock
When the company reported earnings in late-July, Gilead stock dipped on the results. That’s as it missed on top- and bottom-line expectations. While there were some disappointments in the quarter, I think the positives outweigh the negatives.
For instance, the company upped its full-year product sales outlook to a range of $23 billion to $25 billion. That’s up from a prior guide of $21.8 billion to $22.2 billion. Further, management upped its non-GAAP earnings outlook to a new range of $6.25 to $7.45 per share, up from $6.05 to $6.45 per share.
To be fair, the low-end of the new range is still within the old range. But with such a notable bump in guidance overall, plus the potential for remdesivir, it’s odd that the stock has declined so much over the past few weeks.
While analysts expect just modest earnings growth this year, up roughly 5.5%, keep in mind that Gilead stock trades at less than 10 times earnings. Not bad for a company that is forecast to grow revenue 8%, too.
Although estimates call for about flat earnings and revenue growth next year, there’s certainly potential for those figures to increase, particularly after Gilead’s acquisition of Forty Seven for $4.9 billion and recent stakes in several immunotherapy players.
Let’s also not be too quick to forget that Gilead stock pays out a 4.15% dividend yield. At a time where the 10-year Treasury yield is below 0.75%, that’s pretty darn attractive.
Bottom Line on GILD Stock
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Should remdesivir discussions pick up momentum, this stock could easily be bid higher by investors. On the plus side, investors have an opportunity with Gilead stock near $65, rather than at $85 like a few months ago. That drastically lowers the risk investors must take to realize a sizable rewarded.
With a slightly deeper dip, Gilead shares will trade down into an uptrend support mark (blue line) that’s been in play since late-2018. Investors who buy in now can use this mark as a reference. While a close below may put $60 in play, I do not expect the $57 lows to be tested, as there are too many positives to ignore at that point.
What I am looking for — regardless of whether Gilead stock tests down into uptrend support — is a rotation back over $67.50 and the 200-week moving average. Above sets the stage for a rebound back into the $70s.
Ultimately, I am looking for Gilead to regain momentum, potentially putting $77.50-plus and hopefully $85 back in play. You know the saying, “buy low, sell high.” Well, Gilead’s giving us a chance.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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