Gilead Sciences offers strong growth and diversification

In terms of the stock in our portfolios with the highest price-earnings multiple, it is likely Gilead Sciences. Gilead is a biotechnology company that researches, develops and commercializes pharmaceuticals primarily focusing on HIV/AIDS, liver diseases such as hepatitis B and C, and cardiovascular and respiratory conditions. One of the more recognizable products developed by Gilead is Tamiflu, which was widely used (as well as stockpiled by various governments) during the global outbreak of H5N1 avian flu in 2005.

While the stock trades at a P-E multiple in excess of 30 times, versus the S&P 500 at approximately 17 times, we feel that it is justified based on the company’s strong record of growth and the pending launch of highly profitable new drug therapies. We are particularly enthusiastic about two drug compounds which have shown well in late stage clinical trials addressing hepatitis C and leukemia.

On its own, Gilead appears “aggressive”, but because its business is so different from our other holdings it actually helps to diversify the portfolio. However, simply being different is insufficient justification for purchase.  In fact, Gilead has a future earnings profit that we believe will justify today’s valuation.