Question

Select a stock (any stock) that you would invest in at this time based on its current price. Provide justification on why you selected this stock using one of the valuation methods from chapter 11. Either compare the stock you selected to one of its main competitors, or against its valuation prior to Covid-19, and use that as your justification for why the stock you are purchasing is undervalued.

Answer 1

Gilead sciences vs Pfizer

These two stocks are in the state of transition. The top executives at Gilead are totally different than they were just one yar ago. Pfizer is in the midst of slimming down and narrowing its focus.

Both drug makers have faced significant headwins in the last couple of years. However, both also have reasons to be optimistic about the future. Here's how gilead and Pfizer stack up against each other.

Growth prospects

Pfizer will deliver much stronger growth than Gilead sciences will, over the next five years. Analysts projects that Pfizer's earnings will grow by 9% annually on an average, while Gilead's earnings will increase by an average of only 1.4% per year.

Its important to note that Pfizer's growth will be boosted considerably by the company's move to spin off its Upjohn unit and merger it with Mylan. This transaction will remove the older drugs that are weighing on Pfizer's revenue and earnings growth, notably including Lyrica.

Pifizer's will be left with a stable of successful drugs that should drive sales and earnings higher for years. Pfizer's breast cancer drug Ibrance should experience a sales boost as an adjuvant therapy. Rare disease drug Vyndaqel will almost certainly continue to build momentum.

The company's pipeline could also provide some big winners of the future. Pfizer claims nine drugs awaiting regulatory approval and another 23 candidates in late stage testing. Many of these programs target additional indications for already approved drugs, but the company also has promising new candidates including pain drug tanezumab and pneumococcal vaccine PF- 06482077.

Gilead's growth will be driven in part by its HIV franchise, especially Biktarvy. However, the biotech also faces the prospects of declining sales for some of its older HIV drugs that have lost or will lose exclusivity.

The coronavirus outbreak also have created unexpected opportunity for Gilead. While the company initially developed remdesivir to treat the Ebola virus, the antiviral drug has shown promise in treating coronavirus disease COVID 19. A WHO official even stated publicly that remdesivir is the "one drug right now that we think may have efficacy."

However, the biggest potential growth for Gilead over the next few years is filgotinib. The company hopes to win FDA approval for the drug in treating rheumatoid arthritis later in 2020. Gilead is alos evaluating figotinib in late stage studies targeting several other autoimmune disease.

Dividends

Both Gilead and Pfizer offer attractive dividends. Pfizer's dividend yield currently stands at nearly 4.5% while Gilead's dividend yields over 3.6%

But Gilead seems likely to catch up with and surpass Pfizer in the uture. The biotech has increased its dividend by 58% since initiating a dividend program in 2015. Pfizer boosted its dividend by 36% during this period.

Also Pfizer's dividend will be reduced once its Upjohn spinoff is completed. The good news is that Pfizer shareholders will receive shares of new company, viatris which will also pay a dividend. The combination of dividends from Pfizer and viatris is expected to be roughly at the same level as Pfizer's current dividend.

Valuation (after corona virus outbreak)

Gilead                                                             Pfizer

P/E ratio                                               18.18                                                                     12.51                    

EPS                                                         4.21                                                                        2.87

Yield                                                      3.55%                                                                   4.24%

Dividend                                              0.68                                                                       0.38

Beta                                                       0.71                                                                        0.74

current price $86.26 $ 36.65

Before corona virus outbreak the stock price of Gilead was trading at around $ 63 how ever the hopes on gilead for corona virus treatment drug lead to increase in the stock price to $ 86

Conclusion:

Buy Gilead sciences as it has good growth and price will increase if the drug is found out it will have huge demand in the market. BUY GILEAD SCIENCES