Gilead Sciences (GILD 0.34%) is one stock that the coronavirus pandemic hasn't been able to drag down in 2020. While the S&P 500 is down 23% since the beginning of the year, shares of Gilead are up by more than 20% during that time. This resilience is in part because the drug manufacturer may play a key role in helping the world beat the coronavirus. And unlike retailers that depend on many consumers entering their stores, it doesn't have to shut down all or a significant part of its operations to keep people safe.
Gilead isn't just a good pick for risk-averse investors who are worried about investing in highly volatile stocks these days -- it looks to be the hottest stock of 2020. Here's why.
There's a lot of optimism around Remdesivir
The biggest reason to be excited about Gilead is the potential that its Ebola drug, Remdesivir, may have in fighting COVID-19. In February, World Health Organization (WHO) Assistant Director-General Bruce Aylward said: "There is only one drug right now that we think may have real efficacy and that's Remdesivir."
The WHO is launching a trial to assess the effectiveness of Remdesivir as well as three other possible treatment options, including chloroquine and hydroxychloroquine, which President Trump has called a "game-changer" in the past. With the number of coronavirus cases continuing to rise, the situation is becoming more and more desperate. That's why such trials are important to assess what works and what doesn't. The WHO has begun admitting patients from Norway and Spain into the trial, although it's not clear when results may be available.
That said, some clinical data about Remdesivir's effectiveness may be available as early as this month. Chinese scientists have been using the drug in trials on COVID-19 patients in Wuhan, and the results could offer the first extensive signs as to whether the drug works.
If Remdesivir proves effective and gets the blessing from the WHO, that could lead to significant sales growth for Gilead, a company that's been struggling to keep its sales numbers from falling. From sales of $30.4 billion in 2016, Gilead's top line dropped to just $22.4 billion in 2019, a decline of 26% in three years. For biotech companies, a lot of their success can often hinge on the popularity of one drug. Gilead's Hepatitis C drug, Harvoni, used to be the company's flagship drug; it was the top-selling product as recently as 2017. But that's no longer the case, and the company's shifted to generics to offer lower-priced options and to remain competitive.
That's where Remdesivir can fill in a big hole for Gilead, as there are concerns that coronavirus infections may become seasonal and that this pandemic, as serious as it is, isn't just a one-time problem. There could be a significant demand for Remdesivir, if it's proven to be effective, until either the virus is gone for good or a significant number of people are vaccinated. The Trump administration estimates that a vaccine may take up to 18 months to develop, and some experts believe even that's too optimistic of a timeframe.
Gilead's ridiculously cheap
In January, shares of Gilead were trading near their seven-year lows. The stock has recovered since then, but it's still very modestly priced, and there's a lot of potential for it to rise much further. Currently, it's trading at about 18 times its earnings for a forward price-to-earnings (P/E) ratio of 12. Those are modest multiples for value investors, who typically seek a P/E ratio of about 15 or less. But when you consider the company's price-to-earnings-growth (PEG) ratio, which factors in the growth that analysts expect over five years, it looks to be an even better buy. A good PEG multiple is 1 or less, and Gilead's is at 0.5.
By comparison, biotech stock Amgen (AMGN -0.10%) has a PEG of 1.3, and Biogen (BIIB 0.87%) is at 6. If Gilead gets good news about Remdesivir and its ability to treat the coronavirus, the stock's PEG ratio will likely drop even further, indicating its price today is cheap relative to the earnings it's expected to bring.
Investors also benefit from a dividend
Currently, investors who buy shares of Gilead will earn a quarterly dividend payment of $0.68. That equates to an annual dividend yield of 3.8%, which is well above the 2% that investors can normally expect from the typical S&P 500 stock. The company only started paying a dividend in 2015, but it's been increasing its payouts since then.
While the dividend may not be the sole reason to invest in the company, it can help add to the stock's returns and make for a safer investment overall.
Key takeaways for investors
There's a lot riding on Remdesivir, as it can unlock significant potential for Gilead. With more than 236,000 COVID-19 cases in the U.S. alone, there are many patients who could potentially benefit from a treatment option. But even if it fails to win the support of the WHO, the stock's low price makes it a calculated risk for investors to take today. Gilead still has many other clinical studies it's working on, and the stock's success isn't going to hinge on Remdesivir -- but it sure could accelerate the process.