You are on page 1of 2

WHY I BOUGHT GILD AT $73.

65 PER SHARE
Executive Summary:

I recently bought 25 shares of GILD at $73.65 because of (1) the attractive valuation, (2)
the potential for long term capital appreciation, and (3) the free cash flow generation and
balance sheet strength. This is my first position in GILD.

Major risks to my purchase have been well described in various articles on Seeking Alpha
and include (1) earnings growth collapse due to overreliance on HCV products, (2)
relatively short track record of strong earnings growth, (3) an undiversified drug
portfolio, (4) competition from Merck and AbbVie, and (5) increased government
regulation and price controls.

Risks to GILD have been fully priced into the stock, and it offers significant upside for
investors with a holding period longer than 5 years.

I have retained approximately $2,000 to average down my position in GILD in the event
of a price decline of 10% or more from my cost basis. I plan to automatically reinvest all
dividends paid until the stocks P/E ratio exceeds its historical average of ______.

Gilead Sciences, Inc. (GILD) has declined ___% from its all time high of $123.37 on
June 26, 2015, and is now trading at $___, only ___ off its 52 week low of ___. Gilead reached
its current price level as early as November 1, 2013. While GILD investors who have remained
long on the stock since that time have not received any capital appreciation on their investment,
investors in a broader biotechnology index, such as the iShares NASDAQ Biotechnology ETF
(IBB), would be currently sitting on a 29% gain over that same time frame (despite the broader
decline in the biotechnology index over the past year). Broader market sell-offs, such as the one
experienced by biotechnology stocks since 2015, can provide attractive entry points to excellent
companies, which in a stronger market would otherwise be unaffordable. Despite the selloff in
the pharmaceutical industry, many stellar biotechnology companies, such as Pfizer, Amgen,
AbbVie, Bristol-Myers, & Merck, still remain priced near or well above their historical averages.
I do plan on initiating positions in several other biotechnology companies in 2017 due to this
broader decline. My first such investment has been Gilead. Gilead has declined significantly
both as a result of this broader industry downtrend as well as declining performance and
heightened future risks (discussed below). At the current price level, Gilead offers the greatest
prospect of significant capital appreciation and a growing dividend income stream for patient
long term investors.
A. Why I Bought Gilead
I.
Gilead is a well-run company
II.
Valuation
III.
Long Term Capital Appreciation and Earnings Growth Potential
IV.
Free Cash Flow Generation, Balance Sheet Strength and Future Dividend Growth
B. Primary Risks to Purchase
I.
Overreliance on HCV Franchise

II.
Short Track Record
III.
Existing Drug Portfolio
IV.
Increased regulation/Price Controls
C. Why Potential Benefits Outweigh the Risks
D. Plan for Future Action