GILEAD SHARES IN CORRECTION MODE – WHERE WILL THEY FIND A FLOOR?

Gilead Sciences

had been on a rocket ship ride up until September – rising from the $60s to over $100 since April. They corrected lower along with the market and bottomed out along with the market as well in mid-October. Since then, the stock ripped higher – making new all-time highs in the process – before giving way to some new selling pressure. Do the technicals point to more upside in the near future for GILD? Would the fundamentals justify such upside? Let's take a look… What the bulls see in GILD… • Cheap valuation metrics: o A PE of just over 10 times next year's consensus EPS estimates – which is paltry compared to the estimated 2015 growth rates in revenues and EPS of 17.8% and 24.6% o An enterprise value of $164.37 billion that trumps the market capitalization of $158.38 billion • Net profit margins of 45.45% that spin off just under $8 billion in levered free cash flow annually • A current ratio of 2.08 and a debt-to-equity ratio of 67.74% - indicative of balance sheet health / stability What the bears see in GILD… • Expensive valuation metrics: o A price-to-sales of 7.79 o A price-to-book of 11.90 The technical take on GILD shares… Technicians note that GILD may still have more upside in the future, but not before a continued correction takes the stock down to at least the $97.67 level. That level represents three different support projections. First, it is the projected target for the “c” wave of what appears to be an “abc” downside correction in progress. It also represents the 50% retracement line of the June to October rally – which technicians are calling wave “3” of a five wave sequence to the upside (the current pullback being wave “4”). Finally, there is an uptrend line that comes into play right at that level as well. The next move higher should take GILD back to the all-time highs just under $117. Overall… We, along with many un- and under-invested players, would love to buy GILD ahead of what could be even more upside. However, we would only be doing so on a continued pullback to identifiable support and with the idea of honoring stop losses on a close below that support. Otherwise, one might be left feeling like the proverbial “last one at the party”.