On the Rebound with Gilead Sciences

It was a mostly flat week for the holiday-shortened week, as the Dow Jones rose 0.23%, the S&P 500 was up 0.22% and the NASDAQ eked out a 0.06% gain. Global markets fared much better with the MCSI Emerging Markets Index jumping 1.75%.

Big gainers in your Bull Market Alert portfolio included The Bank of Ireland (IRE) soaring 6.07%, Vipshop Holdings Limited (VIPS) gaining 4.51% and the iShares MSCI BRIC ETF (BKF) adding 2.53%.

Four positions hit new 52-week highs, including Flextronics International (FLEX), iShares MSCI BRIC ETF (BKF), United Rentals, Inc. (URI) and Trinity Industries (TRN).

This week’s Bull Market Alert recommendation is Gilead Sciences Inc. (GILD), a biotech giant well known for its success with HIV drugs and, lately, its hepatitis drug, Sovaldi.

Gilead endured an intraday pullback of as much as 8% on Friday before the stock rebounded, ending the day down 1.4%.

The panic ensued after Bloomberg reported the company is discussing selling a “cheaper version” of Sovaldi.

It turns out that Gilead is close to a deal with generic drug makers to bring cheaper versions of its $84,000 hepatitis C drug Sovaldi to approximately 80 developing nations, including India, Pakistan and Indonesia.

Under the terms of the deal set to close at the middle of this month, Gilead intends to sell Sovaldi directly in certain lower-income countries, including India, at $900 for 12 weeks of therapy. Sovaldi sells in the United States for a price of $1,000 a piece, or $84,000 for 12 weeks.

Less well informed investors sold the stock off sharply. In contrast, analysts who follow the company closely were left confused. After all, such a deal was already expected, and it is something Gilead already does with its HIV medication.

In any case, from a pure earnings standpoint, any new sales will only add to Gilead’s profits, as almost all of its current profits are based in the few developed countries’ sales.

Trading at a forward price-to-earnings ratio (P/E) of 11.26, Gilead is now quite a cheap stock, considering both its sales and earnings are growing at a steep rate.

So buy Gilead Sciences Inc. (GILD) at market today and place your initial stop at $90.00.

If you want to play the options, I recommend the November $110 calls (GILD141122C00110000).

Portfolio Update 

The Bank of Ireland (IRE) soared 6.07% higher last week on positive news. The European Central Bank’s (ECB) surprise interest rate cut last week pushed many banks across Europe higher. A look at IRE’s chart also shows a rosy picture for future gains. IRE has been rocketing higher for the past several weeks after two months of trading sideways through July and August. IRE just punched up through the mighty 200-day moving average, signaling the possibility of a considerable future gain. IRE is a BUY.

Flextronics International (FLEX) closed the week flat. However, FLEX also benefited from positive news last week, even managing a new seven-year (and 52-week) high early in the week. FLEX received approval to repurchase up to 20% of its outstanding shares on Wednesday, causing a spike in share prices. The company can purchase shares in blocks of up to $500 million. This gives FLEX a significant tailwind for future gains. FLEX is a BUY.

iShares MSCI BRIC ETF (BKF) added 2.53% last week. BKF experienced spikes in both its price level and trading volume last week. BKF jumped to a new 52-week high early in the week as it spiked higher, following a pattern it has been experiencing since a mid-March low. However, last week’s jump occurred on significantly higher volume for this exchange-traded fund — the third-highest trade volume of the last one-year period. BKF is a BUY.

Trinity Industries (TRN) rose 0.23% last week and hit a new 52-week high. Analyst firm Stern Agee released a recommendation last week confirming my bullish outlook for this railcar maker. Despite already being up nearly 80% for 2014, Stern Agee issued a “Buy” on this stock, after forecasting a large capacity problem as a large positive for this manufacturer of railcars for many years to come. TRN is a BUY.