Today I purchased Gilead Science (Nasdaq:GILD) at $39.81, very close to the 52-week low. I based my decision on the fact that this company's EVA Momentum shows the kind of valuation that allows patient investors to "buy low" and eventually "sell high".
A company like GILD meets these criteria. On top of that, it has over a 38% profit margin and an operating margin that exceeds 52%. This is a value play that is also a growth investment.
Its trailing PE (ttm) is 12.76 and it's future P/E based on earnings estimates that are realistic is a mouthwatering 10. A company that is selling at 10 times next year's earnings and also has a return on equity (ttm) of 47% deserves our attention.
The Price-to-Earnings-Growth (NYSE:PEG) ratio (5 year expected) for GILD is .80. A PEG below 1 is trading at a discount to its anticipated future growth rate.
These criteria are exactly the same as I used to buy ConocoPhillips (NYSE:COP) back in January of this year. It is also why I purchased shares of Anadarko Petroleum (NYSE:APC) today at $63.42.
Anadarko plans to boost capital spending this year to a range between $5.3 billion and $5.6 billion, or as much as 22 percent, as it explores for new oil fields to develop. The bulk of the money is earmarked for U.S. operations.
In February, Mitsui & Co. agreed to take a $1.4 billion stake, or 32.5 percent, in Anadarko's assets in the Marcellus Shale gas field.
Sometimes what drives prices of companies like GILD and APC down are disappointing earnings, future guidance, or potential fallout from disasters, which I believe is why APC dropped so far today.
Andarko is one of the nation's largest independent exploration and production companies, with operations onshore in the United States, in the Gulf of Mexico, and off the shores of Brazil, Africa and others.
It has a 25 percent non-operating stake in a deep water well operated by BP PLC (NYSE:BP) where an explosion occurred earlier this month, creating a massive oil spill. Anadarko has insurance policies in place that have a total of $15 million in deductibles designed to provide protection in the event of disasters.
APC reports earnings on Monday, and the market might be smelling disappointment. APC doesn't meet my usual EVA Momentum criteria, but they have almost $4 billion dollars in operating cash flow and strong leadership. This "Black Swan Event" is driving the price down to where investors like me feel more comfortable beginning our accumulation.
You can learn more about EVA Momentum by way of an introduction in an article at
Getting back to Gilead Sciences, Inc., it is a biopharmaceutical company which engages in the discovery, development, and commercialization of therapeutics for the treatment of life threatening diseases worldwide.
It's product line is nothing short of incredible, and again it has sound corporate leadership that knows well how to create a great future pipeline and outstanding cash flow. http://www.gilead.com
When great companies are ridiculously inexpensive, we are managing risk by looking at the reasons and deciding for ourselves whether the stock price is likely to be significantly lower or higher 6 months or one year from today.
If we get in too early, we still know we are getting better than "reasonable value" and if we consider the most important criteria for buying a company, which includes its EVA Momentum, the potential rewards can be quite pleasing.
Disclaimer: Nothing in this commentary should be construed as investment advice or guidance or any recommendation to buy or sell any financial instrument. It is not intended as investment advice or guidance, nor is it offerred as such. It is solely the opinion of the writer, who is NOT an investment counselor/professional. All content of this commentary is solely an expression of his personal interests and is posted as free-of-charge commentary and is subject to error and change without notice. Please do your own due diligence before investing in ANYTHING. The presence of link to a website does not indicate approval or endorsement of that website or any services, products or opinions that may be offerred by them.
Disclosure: GILD,COP, APC, BP