Even before any public announcements are made, savvy investors and analysts can tell companies are planning something big when they take on huge amounts of debt, which is what biotech giant Gilead Sciences (NASDAQ:GILD) has done.
In this video segment, Fool analyst Kristine Harjes and contributor Todd Campbell explain why companies usually do this, and how to find the information in their balance sheets.
A full transcript follows the video. Listen to the full podcast by clicking here.
Kristine Harjes: One thing that I think is kind of interesting about looking at a balance sheet is, it can give you a pretty good idea of what's on a company's mind, what they're thinking strategically. One example that comes to mind recently is Gilead Sciences, who has a mountain of cash, and still took on more debt to make this mountain even bigger. To me, that -- and also, everything the company has said would agree with this -- that indicates that Gilead is thinking about making a move soon, maybe a pretty big, splashy acquisition.
Todd Campbell: If Celgene was the story last year as far as making a big acquisition, Gilead Sciences is going to be the story in 2016 for making a big acquisition. You don't go out and tap the markets for $10 billion when you've already got $15 billion on the books, unless you're thinking about doing something relatively big. Now, granted, you're doing it at a time before interest rates rise. You're getting this money cheaply.
You can use it for buyback programs, you can use it to shore up dividends, all those other things, as well. But it certainly would say to me that they're out there hunting. And if they're out there hunting, based on what management has said in the past, I would be looking at companies that are between phase two and phase three -- not necessarily with products on the market, but something that could move the needle.
Don't know if it's gonna be cancer, if it's gonna be cardiovascular, I don't know. But something along those lines tends to be what they've focused on in the past, and have indicated they'll focus on again.
Harjes: Yeah, it'll be interesting. That's another reason to keep an eye on this balance sheet. Maybe this could give us some sort of indication just how big the scale of the deal that they're looking at is.
Kristine Harjes owns shares of Gilead Sciences. Todd Campbell owns shares of Celgene and Gilead Sciences. The Motley Fool owns shares of and recommends Celgene and Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.