What I’m Doing With My Gilead Sciences, Inc. Shares

Gilead Sciences, Inc. (NASDAQ:GILD) shares have declined 40% since July 2015. Some investors have sold the stock and moved on. I wondered if I should do the same. I’ve decided to hold on for now. Here’s why.

Is Gilead Sciences priced at a value?

The company experienced tremendous earnings growth in 2014 and 2015, but its falling earnings since 2016 are expected to continue their slide for at least two more years.

Think of it this way, though, if the 2018 earnings-per-share forecast of $7.75 materializes, that will still be a CAGR of 30.6% over five years from 2013 to 2018, which will still be an amazing rate of growth that’s not easily found in such a big company.

Using that same $7.75 EPS, Gilead would be trading at a 2018 multiple of about 8.9, which would still be an attractive buy for a company that maintains its profitability. And if Gilead starts showing any hint of growth, the stock will surely start heading higher.

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Should You Buy AbbVie Inc. For Income and Growth?

AbbVie Inc. (NYSE:ABBV) is one of my top eight U.S. stock picks for February available through my premium service. AbbVie offers a high dividend yield and above-average dividend growth.

Among the eight top picks, there are two high, safe yield ideas, three high-growth ideas, and two value ideas. Seven other great companies were also considered but didn’t make the list; I briefly talked about them in the premium service including their growth prospects and entry points.

drugs

Here’s Morningstar’s business overview on AbbVie:

“AbbVie is a pharmaceutical company with a strong exposure to immunology and oncology. The company’s top drug, Humira, represents over half of the firm’s current profits. The company was spun off from Abbott in early 2013.”

AbbVie offers a nice yield of 4.1%. However, it is a riskier stock because of its reliance on Humira. Moreover, it is highly leveraged.

I’ll compare AbbVie with a safer company like Pfizer (NYSE:PFE) as an example.

In the latest quarter, AbbVie had a financial leverage of 10.3 while Pfizer’s was 2.82. So, AbbVie has higher debt levels in an attempt to drive higher growth.

Indeed, AbbVie has posted high returns on equity since 2013.

2013 2014 2015
ABBV 105% 57% 181%
PFE 28% 12% 10%

Source: Morningstar

Because AbbVie has relatively high debt levels, it makes it all the more important that it has strong liquidity ratios. Indeed, its liquidity ratios look alright. In the latest quarter, its current ratio was 1.79 and its quick ratio was 1.42. Comparatively, Pfizer had lower ratios of 1.11 and 0.78, respectively, as it has lower leverage.

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Why Is Qualcomm, Inc. An Attractive Buy?

Qualcomm, Inc. (NASDAQ:QCOM) shares pulled back about 15% in three months to about $55.50 per share. Thanks to the lower share price due to negative press (i.e. Apple Inc. (NASDAQ:AAPL) suing Qualcomm), Qualcomm now offers an attractive yield of 3.8%. That’s 90% higher than the market’s 2% yield.

Dividend growth and share buybacks

Qualcomm has increased its dividend for 14 consecutive years. It compounded its dividend at an annual rate of 16.5% over the last 10 years. The company last hiked its dividend by 10.4% in Q2 2016.

Over time Qualcomm has been morphing into a more mature dividend company. Up to fiscal 2014, its average annual dividend yield was 2.1% or smaller and its payout ratio was 30% or lower. Its annual payout of $2.12 per share is supported by a payout ratio of about 48%.

Since the end of fiscal 2014, Qualcomm has reduced its share count by almost 13%. It wasn’t a bad use of capital as shares were either fairly valued or undervalued during most of that period.

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