Investment Activity Review - March 2015

In March I made a decision to sell a very strong performing stock on the account that I felt a negative game changer moment was at hand. I also made a decision to add to an existing position in a company who's stock has performed impressively for me in the last year.

SOLD position in Gilead Sciences (Ticker: GILD) for 8.2% gain

I was fine holding the position in Gilead. The company was continuing to generate very meaningful economic profits and their core drugs Harvoni and Sovaldi where becoming entrenched as the go to drugs for treatment of Hepatitis C. From a valuation perspective, the company was very undervalued and many models had the stock priced in the $125-140 range.  It was all good until the company announced that certain patients taking the drugs along with specific heart treatment drugs experienced a slowing down of heartbeat with one patient dying of cardiac arrest.   The stock fell premarket almost 10 percent before recovering. The key for me was deciding if this was one of those Game Changer moments which can take down a stock meaningfully for a long period of time? One of my criteria for identifying a Game Changer moment is when people who use a product die from it. The initial reports claimed one person died and in the cold hearted world of statistics, one person would not be deemed significant. I believe where there’s smoke, there is reasonable chance some fire could emerge.  When death becomes associated with a company and the stock, my first reaction will to be sell and wait for things to shake out. If the company can manage the situation effectively and the side effects of the drug can be addressed then I would be willing to come back into the company. It is very possible it may have been an overreaction.  I just don’t want to hold the stock to wait and find out. It’s about preserving capital and based on this I decided to sell the stock. I still made a bit of money on the position and currency effect gave it another boost on return. I decided I’d rather bank the profit. 

Yet again my experience with health care stocks hasn’t been a great one. The thesis behind having exposure to health stocks is enticing. Ageing demographics that will be requiring more use of various health related resources, from drugs, to equipment to service based care. It all makes sense to me, but when I try to invest in some of these companies the performance just isn’t there. Health care stocks are still to me very high risk because of the high probability of these negative Game Changer events can have on a company along with the regulatory constraints for getting medical products approved for use. The risk level becomes even more pronounced when you are dealing with drugs as it is really like buying a lottery ticket on whether a drug will work and become marketable. Even if does become a blockbuster drug it is very susceptible to a shock either with generic competition or negative side-effects as the Gilead experience has shown.  It is why I am more inclined into investing in a basket of blue chip health companies than cherry picking.

ADDED to position in NeuLion (Ticker: NLN)

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The stock fell from the $1.21 to $0.99 even though company reported another solid quarter of earnings, announced it had bought a European streaming software firm that will give it greater exposure in Europe and open another market.  When the stock broke to $0.99, I decided to add more to my position. My cost base went up but I think there is more long run upside. The stock price pull back seemed like an opportunity to buy more shares on the cheap.