Motley Fool: Balm in Gilead

Rapidly sinking sales of drugs that essentially cure hepatitis C have hammered Gilead Sciences stock (Nasdaq: GILD) so hard you’d think it’s bleeding money. But nothing could be further from the truth.

While its hepatitis C drug revenue has been shrinking and HIV drug competition is heating up, the drugmaker’s balance sheet still boasted a whopping cash balance of $36.6 billion at the end of June after its operations generated a stunning $2.6 billion in free cash flow during the second quarter alone. At this pace, the world’s leading seller of antiviral drugs would produce about 12 cents of distributable profits for every dollar used to purchase shares at recent prices.

Gilead has used its massive cash flows to lower its share count by about 14 percent over the past three years, plus the stock offers a tempting 2.8 percent dividend yield at recent prices. Its cash can also let it spend a lot acquiring other companies (or just some of their drugs) or inking profitable partnerships with smaller companies developing promising drugs.

With double-digit sales growth in its HIV treatment segment and a diverse clinical pipeline that sports compelling candidates in high-value areas such as rheumatoid arthritis, Gilead’s stock is arguably a great value buy for any investor right now simply because of its immense cash position. (The Motley Fool owns shares of and has recommended Gilead Sciences.)

Ask the Fool

Q: When is it a good time to buy bonds? – A.M., Portland, Oregon

A: First, understand that bond prices tend to fall as interest rates rise, because when new bonds are issued at higher rates, older bonds with lower rates will be less attractive. Right now, interest rates are more likely to rise than fall, as they’ve been near historic lows. Also, know that over most long periods, stocks have outperformed bonds. Despite all that, it can be worth adding some bonds to your portfolio for diversification. When the stock market tanks, bonds can offset some losses – though that’s not guaranteed.

There are many kinds of bonds. If you expect interest rates to rise, you might invest in shorter-term bonds instead of getting locked into a low rate for decades. You might also invest in actual individual bonds instead of bond mutual funds and ETFs, because if you hold them to maturity, you’ll get your principal back. (Funds and ETFs offer diversification, though, spreading your money across many bonds.) While government bonds are safest, they offer lower interest rates than, say, corporate bonds.

Alternatively, consider CDs, as they can offer interest rates competitive with those of high-quality bonds. Look up CD rates at bankrate.com.

Q: Where can I find the earnings reports that companies file with the SEC? – J.C., Ashland, Kentucky

A: Many financial websites offer these filings in their stock data offerings, but you can go right to the horse’s mouth at www.sec.gov/edgar.shtml. Once there, click on “Search for Company Filings,” after which you can choose to look up filings using a company’s name or ticker symbol. It’s smart to regularly review 10-K (annual) and 10-Q (quarterly) reports, as they can tell you a lot about a company.

My dumbest investment

My dumbest investment was buying one of your recommendations, TripAdvisor, at $55 per share. It’s now trading for around $40 per share. Ugh. – O.C., online

The Fool responds: Our services are, overall, beating the market, but that doesn’t mean that every recommended stock will perform as expected or hoped. Even the best investors have gotten some calls wrong.

That said, many solid investments can look like dogs for a while. Will TripAdvisor be a long-term winner? It’s too early to say, but critics can reasonably worry about the growing competition it faces and how well it can monetize the more than 530 million user reviews on its site that cover more than a million hotels and accommodations, 4 million restaurants, and much more.

Still, believers have a lot to be hopeful about. Last quarter, TripAdvisor’s average monthly unique visitors reached nearly 390 million, up 14 percent year over year. It’s building a profit center via travel bookings and restaurant reservations, and it recently onboarded IHG and Expedia to its Instant Booking platform, which now sports all major Western hotel chains and both of the major online travel agencies. It’s also beefing up its advertising spending in order to attract more customers and fuel long-term growth.

How well the company will ultimately do remains to be seen, though, and anyone not confident that it has a good chance of succeeding should probably not be holding on to shares.