Market Thoughts - Jan 30 – Gilead and Pinging the Bid
Disclaimer: This post does not constitute financial advice. Author has a long position in Gilead, no position in any other stocks/commodities mentioned. Do your own due diligence before making an investment.
Hello, everyone. Thanks for reading Market Thoughts.
You might have noticed fewer posts on GripRoom this week. It will be like this going forward. The website simply does not generate enough views on our articles. These articles do not generate enough ad revenue to justify having staff writers.
I’ll be doing a Market Thoughts article at least once every two weeks. I usually have a lot to get off my chest and I’m finding that blogging is a better outlet than ranting to my wife.
I might also do some mini articles if there’s something interesting to talk about.
Did anything interesting happen this week? No. Okay. See you later.
…
Just kidding.
What a rollercoaster. GameStop, AMC, and even silver went on a run.
I wrote a tiny article on why GameStop was a wakeup call for Wall Street, but upon reflection it’s probably more like a speeding ticket. I highly doubt this is the end of their criminal behavior.
Let’s talk Gilead.
This week saw quite a bit of manipulation. Gilead was red most of the week. Whoever is manipulating this stock is a master at controlling the pre-market and the afterhours. During these trading periods, Gilead is almost always red.
They do this by pinging the bid.
Outside of regular trading hours, the volume of stock that is traded is usually quite low. The spread between the bid and the ask is high. For Gilead it’s usually around 0.6%.
If the stock closes at $66, the bid might only be $65.60.
There aren’t enough people trading, but somebody might still want to sell after hours, so traders set their bids low enough that whoever wants out might say, “Screw it,” and sell.
In a vacuum there’s nothing wrong with this. If two people agree on the price of a legal good and want to make a legal trade, nobody should be able to stop them.
Unfortunately, pre-market and after-hours trading is being abused.
Wall Street will sell one share of a stock at the bid. This immediately flashes a red price on the screen. A retail investor might look at this and see that others are selling at this price, so he’ll sell at that price too.
Even if someone buys at the ask, Wall Street can undo the upwards momentum by selling another share at the bid. They have basically unlimited resources when it comes to pre-market and after-hours manipulation.
When you’re looking at a stock with low volume before the open or after the close, that’s the price Wall Street wants you to see. Nothing more.
They do this both up and down. Green and red. How often have you seen a stock up huge in the pre-market, open huge, but then quickly fade to black or even red?
It happens all the time.
Unfortunately, I can’t think of a good way to fix extra-hours trading other than shutting it down. Wall Street and manipulative funds/banks benefit far more from pre-market/after-hours trading than anyone else.
Major volume is rarely done during these small windows. Extra-hours trading exists these days mostly as a tool for psychological manipulation.
It’s also probably bad for society. We don’t need people waking up at 5am, frantically checking their phones to see what their stock is doing. They see it’s red, then can’t go back to sleep and their day is ruined.
This lowers productivity.
Okay, rant over.
On to my favorite investment: Gilead Sciences.
Last week I talked about how the company was doing trials for inhaled remdesivir. I also mentioned that it was weird they hadn’t given any updates yet. I said that might be indicative that either the trials had failed, or they didn’t have enough supply to treat everyone.
Given that they’re now recruiting very early Covid-19 patients for a three-course of remdesivir, I’m leaning towards the former. If inhaled remdesivir did work, why would they do a new trial with for an intravenous three-day course?
Or maybe inhaled remdesivir is effective, but not as effective as intravenous. Shaving five days off your hospital stay is definitely worth the price tag of remdesivir, but what if inhaled is only 1 day? Or half a day?
If the inhaled dream is dead, this isn’t the end of the universe. As I said before, drugs that are administered via different methods (nasal, stomach, lungs, etc.) are absorbed differently by the body.
It would be unfortunate if remdesivir could only be administered intravenously, since not everyone has access to a hospital setting. Especially if we run out of beds. Even having people visit a special clinic would be annoying.
One thing I feel strongly about is this:
Gilead’s lack of transparency during these important trials is ludicrous.
Covid-19 is a disaster. World leaders should be have weekly calls with biotech CEOs and get updates on all of their Covid-19 projects so they can plan accordingly. These are not normal times. Covid-19 is an all-hands-deck scenario.
In the beginning, Daniel O’Day was writing open letters. What happened to those?
Normally you’d expect a company to drop bad news on a Friday night, but Gilead sometimes does the opposite. The EUA for remdesivir was done after hours on a Friday. The less-than-spectacular results for their moderate study were dropped pre-market on a Monday.
Sometimes you have to wonder if Gilead’s management understands they have a fiduciary responsibility to shareholders.
Of course, if you subscribe (like I do) to theory that Gilead was being prepped for a merger, then all of those actions make perfect sense.
Where are we now?
Well, since we posted the merger articles, Gilead jumped about 20%, then settled up around 15%. That sort of movement in the long term reduces the likelihood of a merger.
The GameStop action might have killed all manipulated mergers for the time being. Can you imagine someone swooping in to buy a “distressed company” at a time when all eyes are on Wall Street corruption, and the abuse of retail investors by hedge funds?
It would be a total flop. The merger might be blocked. That would be disastrous for both the hedge fund, and the purchasing company, since the “distressed company” would then rally hard, eliminating the future chance of a buyout.
Gilead has a fair value of at least $91.50.
On Thursday they report earnings. Since revenue was guided upwards at JPM, we can assume Gilead will have a great quarter. This would add another $1.50 to their fair value, increasing it to $93.
Short of any major flop, this will happen every quarter. By the end of March, the fair value will increase to $94.50.
By summer Gilead will be worth at least $96.
Every month Gilead becomes more valuable. Yet the share price never reflects that.
In the long run, stocks go up. This is because people work. We create. We build. We invent things. We are compelled by strange forces to create value for others.
We also procreate.
Aggregate sales go up in the long term because there are more people to sell things to. (You can test this by travelling back in time and opening a Costco in California in the year 1345.)
In the long run stocks go up unless the company fails. Gilead is not failing. They are fantastically well positioned.
This week in Gilead:
I’m going to hedge my long position before earnings with some short-dated puts. It’s entirely possible that Gilead has written off their Galapagos investment in the fourth quarter. We could be looking at a beat on revenue, but negative EPS. Manipulators might use that to smash the stock.
The headlines would work in their favor.
Gilead Beats on Revenue, Misses on Profit
That’s all that a short fund would need to justify themselves to the SEC when they smash the stock another 5%, and then 1-2% a day until it’s back to 52-week-lows. Plus, they can say “remdesivir sales will drop to zero as vaccinations pick up.” (Which won’t happen because the South African variant is resistant to vaccines.)
Which is actually quite interesting when you think about therapeutics and clinical trials. With vaccines rolling out across the world, the window for large clinical trials to test your Covid-19 drug is shrinking. If the vaccines are 90% effective, then there simply won’t be enough patients for every company to launch a meaningful clinical trial.
This means we might be stuck with what we’ve got. Which is remdesivir, dexamethasone, and the antibodies from $LLY and $REGN.
Is this good for Gilead? Maybe. It depends on what sort of price they can get for remdesivir after the WHO declares the pandemic to be over. Long term remdesivir revenues depend on Covid-19 mutations and vaccine effectiveness.
Last week I picked up a few more Jan 2023 LEAPS. I’ll grab some more next week on any weakness.
I’m still liking the $80 strike because it protects you against a buyout, while allowing a large upside if the pipeline is even mildly successful. Don’t forget, Gilead should be trading north of $90 today. If trodelvy adds another 15B a year in revenue, it’s going to be a $160 stock at the absolute minimum.
15B might sound like a big jump, but it’s not really. Triple negative breast cancer alone is expected to bring in 4.5B/year. And trodelvy is looking like it might be effective across a wide range of tumors.
It astounds me how more people are not bullish on this stock. Gilead’s revenue is fantastic. Gilead’s growth prospects are fantastic. Their dividend is fantastic.
The only thing holding this company back is manipulation.
It’s very easy to spot. All you need to do is watch the indexes that track a stock, and the stock itself. When biotech indexes and regular indexes that carry Gilead go up, Gilead usually does not go up. But when those indexes slide downwards, Gilead always slides down with them.
Have nice weekend. - David Stone.
