I was thinking about buying Gilead Sciences for quite a long time. You are welcome to read my post Gilead Sciences – good idea for long term investor? where I explain why I think it is a good buy.

Today I bought 28 shares at $75.25, which with commission cost me $2119. Assuming dividend of $0.47 quarterly it is $1.88 annually, so my income should increase by around $53 (less taxes). Not bad. But the real case with Gilead Sciences is that company should buy back tones of shares and this is why I also expect dividend per share to increase significantly in future.

Moreover look at sentiment to Gilead – it is awful! Investors are worried about everything… OK obviously there might be a price pressure for drugs, but first it is somehow discounted by market. Secondly it means that competitors will be less inclined to run own research (profitability of research projects depends on drug prices). Thirdly, changes on the market will not happen at once, it will take at least long few quarters. Fourthly, valuation is very low and there is still some time for patents to expire. Sure – it should be expected that financial results of Gilead will decline, but when company is to generate its’ market cap in free cash flow within 6-7 years it doesn’t sound bad.

Also I do not believe that Gilead’s business will just finish. Well, company is super high quality and delivers growth for many years now. There was always a time when patents expired and then new products were coming on the market. Gilead survived and with every “patent cycle” company is getting bigger and bigger. I just feel it is somewhere bottom of drug’s cycle, where patents are gradually expiring and company is working on new products, which should be introduced in the next years.

 

Disclaimer: GILD – long