Motley Fool: Biotech a good bet for long-term plans
The biotech arena can be a risky one for investors, as many drugs, which take many years and a lot of money to develop, never end up winning FDA approval. It’s also a difficult industry for non-science types to understand. Still, there’s great potential in biotechnology, and risk-tolerant investors with a long-term mindset might want to consider investing in Gilead Sciences (Nasdaq: GILD), an industry leader.
The company sports two very successful (and expensive) hepatitis C drugs, Sovaldi and Harvoni. Additionally, its HIV drugs produce about $10 billion in sales annually, and its cardiovascular drugs Letairis and Ranexa have combined sales north of $1 billion a year, too.
Further out, Gilead Sciences continues to advance its next-generation hepatitis C therapies through clinical trials, and is expanding its footprint into cancer treatment with the launch of Zydelig.
Gilead Sciences is growing briskly, too. From 2013 to 2014, the company more than doubled its revenue. As the company cuts some prices to shore up market share, management expects 14 percent growth in 2015.
The stock, with a forward-looking price-to-earnings (P/E) ratio recently near 10, is appealingly valued. And the company is initiating a dividend payment, too. With its cash pile recently topping $11 billion, it can afford the dividend and a lot more research and even acquisitions, too. (The Motley Fool owns and has recommended Gilead Sciences.)
Ask the Fool
Q: Can I deduct a capital gains loss from selling a stock in my IRA? – J.B., Daleville, Alabama
A: Nope. With a traditional IRA, you typically deposit pre-tax money in it and are eventually taxed on your withdrawals in retirement, regardless of any gains or losses that happened along the way. (If you make nondeductible contributions to your traditional IRA, they won’t be taxed when you take them in the form of distributions.)
With Roth IRAs, you invest post-tax money and eventually withdraw it all tax-free. But you don’t claim losses (or get taxed on gains) in the interim.
Q: What’s a hostile takeover? – P.L., Marlborough, New Hampshire
A: In the business world, when one company buys another, it’s typically done with mutual agreement. Managers from each company will meet with one another and freely share information about their businesses.
Hostile takeovers are different, though, as the company to be bought is not happy about the acquisition and not very cooperative. A hostile takeover happens when one company sees some strategic value in another. It may make friendly overtures and be rebuffed. If so, it may then start dealing directly with the target’s shareholders, offering to buy their shares from them for either a certain amount in cash or an exchange of stock.
If enough shareholders respond, the acquirer can gain control. In order to entice shareholders, the offer will generally be for a price significantly higher than the target’s current stock price. (Companies whose share prices have slumped are extra-vulnerable to takeovers.)
Some famous hostile takeovers include InBev buying Anheuser-Busch, Sanofi-Aventis buying Genzyme and IBM buying Lotus. It’s worth noting that many hostile takeover attempts fail, as did Hilton’s 1997 bid for ITT.
My dumbest investment
My dumbest investment was Nortel Networks, which has filed for bankruptcy. It kept going up and up – then it crashed. Now I realize that it was a pure momentum play; everyone bought it because everyone else was buying it. There were signs of trouble, and it had strong competition. Nortel bought many small tech companies but failed to integrate them very well.
The only bright spot: Every time it doubled, I sold half of my holding. I think that is a good approach to take when a stock price goes up faster than the fundamentals seem to justify. – E.M., Victoria, British Columbia, Canada
The Fool responds: It’s risky to chase a surging stock without thinking about its competitive advantages and valuation. Regularly selling half your shares saved you from losing your shirt, but note that had it been a long-term winning company, you would have been reducing your ultimate return by shrinking your number of shares held.