Smart Investing


January 27, 2012


Learning an investment lesson from T.O.

Many people know or have heard of Terrell Owens, aka T.O. He was interviewed recently by GQ magazine, and before reading the interview, one might have assumed he had it all.

Now, at 38 and after earning $80 million in his NFL career, he said he is in deep financial trouble. Unfortunately, he is not the only well-known athlete to earn a lot of money and have little to show for it in the end. But unlike some of the other well-known athletes who wasted their money on excessive luxuries, T.O. lost it by getting bad investment advice from advisers.

Being an adviser myself, I always hate to hear of such abuses, but sometimes it is self-inflicted. I’ve been advising people on their money for nearly 30 years, and while I don’t guarantee that I can make 10 percent per year on average, I tell people that is my goal. I’m pretty happy with that return goal, as many clients are. I also tell people that in the next five to seven years, we will have probably two losing years. That is going to happen when you invest, one can’t win every year.

I’ve had many wealthy people, including athletes and celebrities, who thought that was silly and that they should be able to earn much more than that. Investing the way I have been for the past 30 years was too simple for them, and they thought they would be able to do much better with someone else. There are plenty of advisers out there who will tell you they can do far better, but they are the ones that the T.O.s of the world go to. They want that special treatment. I don’t care if you have $50,000 to invest or $50 million to invest, it always makes sense to buy low, sell high and be sure one is buying quality investments based on strong fundamentals.

An example of a strong company that I’m sure T.O. never got into is Gilead Sciences (Nasdaq: GILD). This is a biopharmaceutical company engaged in the discovery, development and commercialization of therapeutics for the treatment of life-threatening diseases worldwide. The company has grown sales at a 2.5 percent rate year over year, not quite as good as the industry average growth of 10.9 percent, but EPS has grown at a rate of 1.2 percent when the industry saw its EPS decline by 17.3 percent.

The company has a current PE of 13.8, well below the industry average of 39.6. Price to cash flow also looks good for Gilead at 11.82 when compared to the industry average of 22.1. The forward PE is only 11.9 based on the mean estimate of 24 analysts with a per-share estimate of $4.07. This estimate has fallen from $4.49 over the last 90 days while the stock has risen 17 percent.

The balance sheet looks fairly strong, with a current ratio of 2.8, just under the industry average of 3.3. Debt to equity could use a little work. Nothing to get upset about, but Gilead has a total debt to equity of 64 percent compared to the industry debt to equity of 44 percent. The company does have $2.3 billion in cash and short-term investments compared to total debt of $3.9 billion, so, again, I would watch the debt, which has more than doubled over the last couple of years, just to make sure it doesn’t get out of control. One area that could help is that, over the last nine months, Gilead has generated $2.7 billion in cash flow.

The company returned 46.8 percent on its equity over the last 12 months, far better than the industry average of 9.8 percent. The company also has a peg ratio of 0.78, which reveals that investors are not paying a high price for the growth going forward.

It also should be noted that on Thursday, Gilead reports its fourth-quarter earnings and will probably discuss the business going forward. When it’s this close to an earnings release, it makes sense to wait and read the report before making a new investment.

If by some chance T.O. reads this, maybe he should consider looking at investing some of his money in Gilead after he talks with a reputable investment adviser. I have one in mind if he will listen.

Wilsey is president of Wilsey Asset Management and can be heard every Saturday at 8 a.m. on KFMB AM760. Information is provided by Reuters.


January 27, 2012