Gilead Added To Our 2023 Model Portfolio (Technical Analysis) (NASDAQ:GILD)

Gilead (NASDAQ:GILD) has our proprietary fundamental and technical Buy Signal, so we have added it to our Model Portfolio. A quick check with Seeking Alpha’s quantitative ratings shows high grades for Profitability, Revisions and Momentum.

Naturally we want to do our due diligence and verify both the fundamentals and technicals to make sure our SID computer is doing it right. We especially want to check out that SA low grade in Valuation. In this bear market, we are not looking for overvalued growth stocks, but we will accept low growth ratings.

Fundamentals

If you search for GILD on SA and hit the Valuation tab, you can see why it is overvalued. It has a high PE and low growth and that gives it a poor PEG rating. In other words, the PE is too high versus projected growth. To bring these into alignment, price would have to come down. Price recently had a big run-up and is now pulling back, triggering our “buy-on-weakness” signal, even though it is fully valued.

GILD is a low beta stock and portfolio managers have to be in these stocks during a bear market, because they will usually beat the Index. It has an attractive dividend at 3.5% and that is better than being in cash as long as the stock price does not fall. GILD’s price just had a big pop after the last earnings report as its breast cancer drug, Trodelvy, is showing aggressive growth and that helped caused the earnings pop. Unfortunately, the revenues for this drug are not yet significant to GILD’s total revenues. It is not a blockbuster cure.

Consensus analyst earnings for 2023 are ~$6.75, and if you give it a 15 PE, then our target is $101.25. However, the analyst consensus target is only ~$83 and that may explain why price is dropping here. Maybe the pop after earnings was a little too much. Regardless, GILD has a lot going for it if this bear market continues into a recession. It looks like it could continue outperforming this bear market.

Technicals

Below is our chart showing GILD’s strong Buy Signals. However, they may have peaked for the time being.

At the top of the weekly chart is our Stocks In Demand, SID, proprietary Buy Signal. This signal uses both fundamentals and technicals, unlike the other signals on the chart that are purely technical. Our Buy Signal range is from 80 to 100. You can see our Buy Signal has dropped from above 90 down to 82.

Below this signal is price. You can see after the big earnings pop that price soared from $68 to $89. That kind of momentum triggered our SID Buy Signal. Notice that price is now moving sideways, consolidating and no longer outperforming the market. Price has violated the ten-week moving average uptrend. However, the long term, 200-day uptrend is intact and is not threatened by the short term weakness in price. High volume selling took price down to $82 and now there is another test of that support level.

Next is Chaikin Money Flow and the change in direction is important. You can see that it has peaked and is dropping.

Below that indicator is the MACD and you can see the buying cycle has peaked and GILD is in a selling cycle which has triggered our proprietary “buy-on-weakness” signal. That is why we added it to our 2023 Model Portfolio. We are early and this selling could continue for a few more weeks. You may get it cheaper.

Below the MACD signal is the relative strength signal and that uptrend tells us price is outperforming the Index. But you can see the line dropping down to test the uptrend. In recent weeks, price is underperforming the Index as buyers took profits after the big pop in price.

The next signal Full STO, shows the overbought, demand buy signal is still operative, but threatened. We will draw a red, vertical line; Sell Signal if it breaks down.

Finally, at the bottom of the chart, the ADX signal green line shows demand dropping and the rising red line shows supply increasing.

All these signals correlate with what you see in price and volume changes on the chart. No black box magic here. If you know how to “read the tape”, you don’t need these signals. But tape reading is a lost art and the robots need these signals.