Recent stock buys (+ analysis): August + September

As the stock market has mostly been going up in August, it was a little harder to find undervalued stocks at first sight. Yet, after some more profounded research, I decided to go with 2 companies out of many: Gilead Sciences Inc. and Walt Disney Co. .

My first choice was to strengthen my position in Gilead Sciences by 15 shares at $78. This brings my total position in GILD up to 50 shares in total. The net current annual dividend income from these extra 15 shares should be around €15,62.

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This was the 3rd time I bought myself into GILD. Why? The stock has been struggling for more than a year now. The last 5 years, the stock price has quadrupled. Thanks to their 2 multibillion dollar treatments Harvoni and Sovaldi, their earnings have skyrocketed. Unfortunately, due to more competition in the hepatitis C market and declining sales, the stock has fallen out of favor to most investors. This is what intrests me.

GILD trades at less than 7 times earnings and yields around 2,4% in dividend with a payout rate of only 15%.  This means there’s a lot of room left for future increases or investments. Their cash flow is huge and their operation margin is over 50%. The company has been very busy buying back shares the latest years. In January 2016, the company authorized a share buyback of $12 billion. This is more than 10% of the company’s total worth. Some analysts criticize Gilead for not using the cash for other purposes such as acquisitions. As I think the GILD stock is undervalued, so the share buyback is a good move. If they keep buying and reduce the share count untill my 50 shares, it would even be better.

However, acquisitions are a necessity, especially in that sector. Overpaying billions for a company in a bid war, is just a bad strategical move. They made fair offer for Medivation, but Pfizer outbid them by almost 70%. Recently CEO John F. Milligan stated that Gilead is waiting patiently to acquire new companies when the time comes. With more than $25 billion in cash (and equivalents), they surely have some buying power.

In my view, Gilead is losing some battles but will end up winning the war. The shares at their current price reflect a lot of negativity and few good perspectives. They still have a rather big pipeline in development and some alliances with smaller companies. These potential next big hitters are completely forgotten in the price of the stock.

According to me, if Gilead could acquire some strategical companies and keep growing (even at a slower pace), long-term value will be achieved.

For a more thoroughly analysis of the GILD stock, I would refer you to http://seekingalpha.com/article/4004410-gilead-sciences-snooze-lose
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The other buy I made was The Walt Disney Co. I bought 14 shares of $93 which should add another €11,40 to my annual dividend income. Not a high amount, due to Disney’s dividend policy. Yet this doesn’t bother me, since Disney’s IPO they were able to make an average yearly return of 18%, including dividend reinvestments. Knowing it seems like a Hercules’ task to outperform this, it’s better to let Disney use the earnings to raise future profits and return capital to their shareholders this way. Trading at a P/E of 16,5 which is not so common for a similar company, it looks like a good addition to my portfolio.

Of course the bad stock performance has had its reasons. Investors have been worried that the ESPN Channel is losing customers. However, Disney is taking action to keep their growth on track. They recently built a huge new theme park in Shanghai which should bring in some nice cash and reported more than 1 million visitors the first 2 months.

disney-shanghai-park

Also, they took a stake in BAMTech, a streaming network, for about 33% equalling $1 billion. They have also made a deal with Netflix to broadcast more Disney movies. These actions should help compensating the losses of customers at ESPN.

Eventually, what’s not to like about the good old Mickey Mouse behemoth? Some bad news causing a lower stock price, perfect buy opportunity according to me.

So far my latest buys in the almighty stock market…

Currently I am looking to buy shares of Apple or IBM… depending on the share price when my new paycheck comes in. I hope Apple has some lack in their earnings report so the stock price goes down a little more.

What are your thoughts on the mentioned stocks?

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5 thoughts on “Recent stock buys (+ analysis): August + September

  1. Stalflare

    Ciao WDIR,
    I found your blog thanks to our common friend Amber Tree, I’ll put you on my “read list” as it’s not easy to find hat many fellow European investors out there. I could not see the portfolio too well, I try to click on the image but it doesn’t enlarge it, is it meant to behave like that? I also own DIS, but no Gilead although I hear lots of good stories about them,
    Ciao ciao
    Stal

    Like

    • When Do You Retire?

      Hey Stal, glad I can be on your read list :).

      I have been trying to find a better way to implement my portfolio (with live stock quotes) but so far I haven’t been succesfull in the matter. I will look into it in the near future.

      GILD is in my opinion pretty undervalued.
      I don’t neglect the fact they are struggling right now with less income due to increased competition, however they have a lot of products in the pipeline and management is being carefull with acquisitions to not overpay. I will just be patient and see what the future brings.

      Greets

      Like

  2. Stalflare

    Ciao WDYR,
    Shared spreadsheets are very easy with GOOGLE DOCS (I suggest you run a search for the specific function), I use them and apart from some glitches they do a perfect job.

    As to Gilead, I tend not to meddle too much with biopharma companies, but maybe that’s my bias (I see them pretty unstable to the “news”), but maybe it’s time I reasses this point… I’ll run some research there!
    ciao ciao
    Stal

    Liked by 1 persoon

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