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Over 30 years of investing in individual stocks. Extensive business experience with small to mid-size companies, including as CEO. Many hundreds of blog posts on financial and economic matters since 2008. Focus on value with catalysts for upside price action. Background as a physician and... More
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  • Pfizer-Allergan: One High P/E Stock Buys An Even Higher P/E Stock; Gilead Remains The Most Attractive Large Cap Pharma Stock

    Pfizer (NYSE:PFE), which now looks little more than a roll-up that provides work for investment bankers while also developing a few products internally, trades at 24X TTM EPS (I use GAAP almost exclusively).

    It is planning to purchase Allergan (NYSE:AGN) at perhaps 35X earnings.

    As we all know, AGN's major product is decades old: Botox. Competition against Botox has been increasing, and AGN itself is a roll-up that has continued to do even more deals even after the final Watson/Actavis/Forest etc. roll-up bought it and did the name change thing.

    This new Pfizer, assuming the deal closes, will provide endless possibilities to confuse investors with non-GAAP accounting.

    I've basically treated PFE as dead money for more than 15 years, though I dimly recalling doing some quick trading in it in the dot-com recession, buying around $29 and selling around $32. Then I traded it in the low $20s and made a couple of bucks. Here it is, numerous acquisitions and divestitures later, back at $32.

    Given that JNJ is only 55-60% a pharma company, there is only one Big Pharma company I like, and that's the biotech company Roche AG (OTCQX:RHHBY), which owns Genetech. Novartis (NYSE:NVS) isn't too bad a company, but the stock is seriously overvalued given a no-growth profile (just less so than some of its peers).

    The idea that PFE, which is already debt-heavy, is buying debt-laden AGN is almost bizarre. Bristol-Myers (NYSE:BMY) is at 64X TTM earnings, Lilly (NYSE:LLY) is at 38X, etc.

    In contrast, Gilead (NASDAQ:GILD) is at 10X.

    It's not a fair fight from a valuation standpoint. GILD is by far the best dividend-paying pharmaceutical stock of any reasonable size on the planet. Just think. If GILD's earnings totally imploded, and dropped by half, the stock could trade at $210 and still have a much lower P/E than BMY and would be at the same P/E as LLY.

    There are no guarantees in the market, but relative value is my favorite way to invest. Thus:

    Long and strong GILD.

    Nov 22 8:54 PM | Link | 25 Comments
  • Good Tidings For GILD From AASLD? Plus AAPL Gets A Goldman Upgrade

    Barron's reports analysis from UBS about the sum-up from the AASLD meeting that concluded recently in Boston.

    Some brief excerpts from the linked blog post include:

    ...We think Gilead's positioning in HCV is strengthened...

    ...experts are becoming less comfortable with protease inhibitor-based regimens...

    Based on the C-CREST 8wk data, we think Merck (MRK) has to go to 12wks to get to high SVR's across genotypes. We see the Graz/Elba doublet (i.e. MRK's combo) as less of a threat...

    The last quote explains why I haven't been overly concerned with the MRK "threat." It's a great company; their product will get some market share, but unless MRK begins a suicidal price war it cannot win, I think it will settle for what revenues it can get at as close to full price as possible. Of course, I've been wrong before, so there are no guarantees here, but that's how I'm positioned.


    Gilead's ASTRAL dataset was a shock-and-awe campaign with very high SVR's across all 6 GT's, including decompensated cirrhotics. This sets a much higher bar for next-gen regimens, which at some point may need to show non-inferiority to gain FDA approvals (as seen in HIV).


    That's... well... awesome. I continue to see limited fundamental downside risk in GILD versus a market I view as frothy and overpriced based on incoming economic data trends.

    In addition, the other name I spoke well of in my article on Monday that took cautious and even mildly bearish view of the market (NYSEARCA:SPY), Apple (NASDAQ:AAPL), had a nice comment and upgrade from Goldman. It appears that more and more observers are appreciating that AAPL has the strongest ecosystem in its segment of the economy. I've pointed out in several articles that even Microsoft (NASDAQ:MSFT) has recognized that fact. If it's the ecosystem rather than one particular device that investors should focus on, then AAPL deserves a substantially higher relative P/E versus MSFT or Alphabet (NASDAQ:GOOGL).

    I have been adding a bit to my GILD holdings here and taking some profits on riskier stocks to pay for it. AAPL remains my #1 stock and GILD is #2 by dollar value.

    Nov 18 12:13 PM | Link | 15 Comments
  • Celgene Reports Q3, Analysts Lower EPS Estimates - Preliminary Commentary

    Celgene (NASDAQ:CELG) reported Q3 results Thursday and has now filed its 10-Q. The company lost 4 cents per share in Q3, which somehow was translated into a "non-GAAP" $1.23 profit by the company. The NYT is now calling this transformation from GAAP to a company's preferred numbers "fantasy," and regular readers know that in general I agree in general.

    CELG is now trading at what I calculate is slightly above 60X TTM EPS. Analysts have, however, lowered their non-GAAP views of CELG's 2016 EPS, a potentially bad sign for how the stock will trade in the days ahead.

    However, over time, CELG may have extraordinary prospects.

    As part of my macro call that biotechs (NASDAQ:IBB) were probably topping in the June-July period, I mentioned on Seeking Alpha that I had sold the last of my CELG shares on or about July 16, after the stock soared to $135 on news that it was acquiring Receptos - a reaction from Mr. Market that I thought was A) ridiculous and B) evidence of too much froth; or perhaps it could be called simple distribution of stock to weak hands.

    In any case, after the bear move that unsurprisingly followed, CELG looked more reasonably valued, so I bought back into the stock around $120 yesterday morning with a smallish position.

    After writing up half of a full-length article last night, I found it important to do some more research on patent positions and other matters, so this InstaBlog will do for now. I'm shooting for getting a CELG article out Monday that would provide more potential value for readers; perhaps there will be enough material for a multi-part article on this iconic stock.

    Tags: CELG, IBB, Biotech
    Nov 06 8:03 AM | Link | 13 Comments
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