The Motley Fool: Biotech firm has the market for hepatitis C drugs in its grasp

You may not have heard of Gilead Sciences (Nasdaq: GILD), but it’s a biotech powerhouse, with a market value recently near $150 billion. Gilead has become the dominant player in both the HIV and hepatitis C drug markets, gobbling up smaller biotechs and biopharma companies and then leveraging its vast resources to accelerate the development of their most promising product candidates. The results have been spectacular.

After acquiring Pharmasset in 2011, for instance, Gilead quickly built a formidable position in the lucrative hepatitis C space by bringing Sovaldi and Harvoni to market in rapid succession. These two drugs have helped Gilead’s free cash flow top $17 billion over the past 12 months, enabling management to initiate a dividend payment (recently yielding 1.7 percent annually) and significantly amp up its share buyback program.

Gilead’s top line is expected to stagnate over the next year, but it should still generate staggering amounts of free cash flow that could be used for a variety of value-creating activities, such as paying off debt, buying other drugmakers with approved products already on the market, or simply increasing the dividend.

With its recent and forward-looking price-to-earnings (P/E) ratios in the single digits, well below historical levels, Gilead is attractively priced and worth consideration for the portfolios of patient investors. (The Motley Fool owns shares of and has recommended Gilead Sciences.)

My dumbest investment

My dumbest investment was getting caught up in the hype of 3-D stocks. I had $1,000 to invest and was torn between shares of carmaker Tesla and 3-D printing specialist 3D Systems. 3D pulled back from its all-time high near $100 per share to $88, so I decided to put half my money into 3D and the other half into Tesla, which had also pulled back.

Tesla stock surged from that point, while 3D plunged. Luckily, my Tesla gains made up for my 3D losses, but I learned my lesson about getting caught up in hype without really looking into why something was going up or down. – Eric, online

The Fool responds: 3D Systems has crashed badly over the past two years, in part due to increased competition, supply-chain problems, soft demand, an aggressive acquisition strategy and a price that got unreasonably high – leading many to “short” (bet against) its shares. It’s not doomed, though, and may still reward patient believers over the long haul – when demand picks up, if it can lower its expenses, and if its heavy investments in research and development pay off.

You’re right to be wary of hype, though. It’s especially important to be careful with emerging technologies such as 3-D printing, where it’s not yet clear how big the market will be, and which companies will be the most successful.

Ask the Fool

Q: Will I be taxed on gains from stocks that I inherit? – S.W., Norwich, Connecticut

A: Yes - when you sell the shares. To calculate your gain then, you’ll need to know your “cost basis,” which is different for inherited stock than for gifts of stock. With a gift of appreciated stock or property, your basis is the same as the giver’s original basis. You’ll need to try to trace the cost all the way back to when the giver bought the asset, which may be hard.

The situation is usually better with an inheritance. You’ll get a “stepped-up” basis, which is the fair market value of the stock on the donor’s date of death. The estate’s tax return should disclose the value of the stock at date of death.

Alternatively, if you know the date of death, you can find the historical stock price online at various sources, such as finance.yahoo.com. You might even call your broker or the company’s investor relations department and ask. Once you find the value, save documentation of it in some form in case the IRS audits your tax return one day. Learn more at tax.fool.com and irs.gov.

Q: How are stockbrokers paid? – G.T., Gresham, Oregon

A: They’re generally paid by salary, commissions on sales, or a combination of the two, depending on the company they work for. It’s good to find out how your broker is paid, as those who depend heavily on commissions can encourage a lot of trading in your account, often needlessly. That’s called “churning,” and it can cost you.

We’d rather see brokers paid flat salaries, with bonuses for results that outperform the market averages. Learn more at sec.gov/investor/brokers.htm and broker.fool.com.