None of our Cabot Benjamin Graham Value Investor companies reported quarterly financial results during the past week, but today’s update includes subscriber questions about Gilead Sciences (GILD) and Maiden Holdings (MHLD) with my responses.
Also in this update, I present two indexes that list companies featured in the Cabot Value Model or in the Cabot Enterprising Model during the most recent four months so you can quickly find my recent write-ups for stocks appearing in the models.
My schedule for the next five weeks will be:
- Friday, April 21: Weekly Update
- Friday, April 28: Weekly Update
- Thursday, May 4: Cabot Value Model issue 274V
- Friday, May 5: Weekly Update
- Thursday, May 11: Cabot Enterprising Model issue 274E
- Friday, May 12: Weekly Update
- Friday, May 19: Weekly Update
Company Reports
None.
Questions and Answers
Question: Concerned about Gilead. It has been going steadily down for the last 2 years. It seems the company’s profitability and future depend on the state of the national health care plan in place. If the Trump Administration is successful in cutting the government’s Medicaid program, a program that gives more HIV patient access to its drugs, Gilead’s bottom line will probably be hurt.
Also, there is a rapid growth in competition through generic drugs for Gilead’s HIV products.
I understand that more than half of Gilead’s sales in 2017 are expected to come from its HIV drugs.
I know the financials are strong and the dividend payout is low, but it seems that investors are having reasons to be worried.
Has your opinion changed in any way? (from subscriber G.H.)
Answer: Gilead Sciences (GILD 66.51) shares have dropped noticeably after management warned investors in January that sales of its 2017 hepatitis C treatments would fall at least 40% from 2016 sales. The ongoing decline in hep C sales continues to overshadow everything else about the company, including its market-leading HIV treatments.
Gilead has a huge cash hoard of $32 billion ($24 per share), much of which is sitting in overseas accounts. Gilead’s large cash position provides the potential to acquire a significant biotechnology company. If President Trump declares a tax holiday to repatriate overseas funds, Gilead will become a major beneficiary. In addition, Trump will likely allow the FDA to fast-track new drugs, which could help Gilead bring new drugs to market.
At 6.8 times current EPS and with a dividend yield of 3.2%, Gilead shares are cheap. The company is a good candidate to be acquired because of Gilead’s expanding HIV drug sales and several additional drugs in development that could add significant sales in future years. I normally wouldn’t recommend holding a company where the sales and earnings are plummeting, but I believe Gilead will be purchased by another company or investor group, or Gilead will spend its extra cash on a significant acquisition within the next 12 months. Hold.
Question: The bad news about MHLD has caused this very low risk to plummet. My question to you is should I bail out and take my loss or hang in there? (from subscriber T.L.)
Answer: Shares of Maiden Holdings (MHLD 12.15) are dropping after the company recorded weak fourth-quarter results and after The Wall Street Journal on April 11 reported that the SEC is leading a federal investigation of insurer AmTrust Financial Services (AFSI) and its auditors. AmTrust is Maiden’s largest client. Michael Karfunkel, George Karfunkel and Barry Zyskind were the founding shareholders of Maiden Holdings. George Karfunkel is a director of AmTrust and Barry Zyskind is the president, CEO and chairman of AmTrust.
The SEC investigation of AmTrust was prompted by a whistleblower, causing AmTrust shares to plunge more than 25%. Thus far, Maiden has not been dragged into the SEC investigation, but investors are speculating that the cross-tie-ins of the companies’ officers and directors could bring the SEC to investigate both companies. At this point, though, it doesn’t appear that Maiden Holdings is part of the problem at AmTrust. I will keep a close eye on the situation as it evolves. Hold MHLD.
Index of Latest Summaries – Recommendations featured in recent issues.
