On July 14, 2020, Silver Ring Value Partners LP released its Q2 2020 Investor Letter, a copy of which you can download here. The investment firm was founded in 2016 by Chief Investment Officer and Managing Partner Gary Mishuris. In its Q2 2020 Investor Letter, Silver Ring Value Partners LP reported 14 investments with a 5.0% cash level and a 78% option-adjusted net exposure. At the end of the quarter, the fund reached a 54% price to base case value estimate. You should check out Silver Ring Value Partners’ top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.
In the said letter, Silver Ring Value Partners highlighted a few stocks and Gilead Sciences Inc (NASDAQ:GILD) is one of them. Gilead Sciences Inc (NASDAQ:GILD) is a biotechnology company. Year-to-date, Gilead Sciences Inc (NASDAQ:GILD) stock gained 17.9% and on July 14th it had a closing price of $77.19. Here is what Silver Ring Value Partners said:
“This has not been a successful investment for the partnership. My value estimate has come down moderately over time. While the core HIV business performed slightly better than I expected, the HCV business did worse, and the pipeline has not thus far produced the expected contribution to the revenue stream.
The new CEO seems focused on early stage M&A to fill the pipeline rather than buying back undervalued stock, which was disappointing. I get that doing exciting M&A is more fun than boring share buybacks, but it’s not clear to me that it creates more value for the shareholders. Certainly the company has the cash flow and balance sheet for both, and the fact that management chose to not buy back a meaningful amount of shares is a negative.
The stock rallied to ~ 90% of my Base Case due to optimism for the prospects of revdesimir, the only approved drug for COVID. On a call the CEO was asked multiple times about the economics for the drug and dodged all questions with platitudes. Finally, an analyst asked him point blank if he expects to make a profit for the company on this drug. He dodged that question as well. The combination of these circumstances and the price/value ratio led me to conclude that it is time to move on, and I exited our position during the quarter.
One silver lining here is this unsuccessful investment illustrates the importance of the margin of safety that I seek when deploying our capital. A number of things went wrong, and we still were able to realize a small profit for the partnership on this investment. Not all my mistakes will result in such a benign outcome, but the fact that we were able to do so serves as partial validation of my disciplined value investing approach that seeks to protect our capital from permanent loss.”
In Q1 2020, the number of bullish hedge fund positions on Gilead Sciences Inc (NASDAQ:GILD) stock increased by about 13% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t seem to agree with Gilead’s downside potential. Our calculations showed that Gilead Sciences Inc (NASDAQ:GILD) isn’t ranked among the 30 most popular stocks among hedge funds.
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Video: Top 5 Stocks Among Hedge Funds
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