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Saturday, February 22, 2020  Spokane, Washington  Est. May 19, 1883
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The Motley Fool: Drug giant Novartis is poised for future profit

The Motley Fool

The Motley Fool Take

You may not know Switzerland-based Novartis AG (NYSE: NVS) by name, but with a market value near $190 billion, it was recently the world’s second-largest pharmaceutical company, second-largest generic medicines company and largest eye-care company. With disappointing fourth-quarter results and a weak near-term outlook due to patent expirations and a struggling eye-care business, the stock has recently taken a hit, but its long-term prospects remain promising.

Novartis’ pharmaceutical division features more than 50 company-owned branded drugs, while its Sandoz generics business has more than 1,000 generic and biologic drugs on the market. Sandoz launched Zarxio last year, a biosimilar of Amgen’s billion-dollar drug Neupogen. It was the first biosimilar drug (comparable to a generic version of a biologic drug) approved in the U.S. Sandoz is well-positioned to profit from more biosimilar drugs, with several in phase 3 trials. Its plans to seek approval for 10 major biosimilars in the next few years could be a major tailwind.

The company is aggressively investing in its future, spending about $9 billion on research and development in 2015, while receiving 18 regulatory approvals in the U.S., Europe and Japan. Its pipeline recently featured more than 200 projects in clinical development, including 135 pharmaceutical ones.

Novartis’ stock recently yielded 3.5 percent, and it has been hiking that payout for many years in a row.

Ask the Fool

Q: What’s the prime rate? – V.R., Fort Myers, Florida

A: The prime rate is the interest rate that banks charge their lowest-risk commercial customers. Each bank may set its prime rate, but the major commercial banks tend to sport the same one most of the time. You’ll find the prime rate listed in most newspapers’ business sections.

Interest rates for mortgages, home equity loans, credit cards and other business loans take their lead from the prime rate. A car loan rate, for example, might be calculated by taking the current prime rate and adding a certain amount to it.

The prime rate is typically left unchanged until major banks change their rates, often in response to economic conditions – such as when the Federal Reserve changes its discount rate, which is what it charges banks that borrow short-term money.

Q: Is it a smart strategy to find and buy stocks trading near their 52-week lows and to sell ones trading near their highs? – F.P., Las Cruces, New Mexico

A: It’s smart to buy low and sell high, but don’t focus too much on 52-week ranges. If a company’s stock is trading near its all-year low, it might indeed be a bargain facing a temporary problem – but it might also be facing long-lasting troubles and heading even lower. Further research can help you decide whether it’s a good candidate for your portfolio.

Selling a stock at its all-year high isn’t always best, either. Many wonderful companies have rewarded shareholders for decades, repeatedly setting new highs despite occasional hiccups. By selling, you miss out on future gains.

Aim to buy a stock when it’s significantly underpriced and sell when it’s overpriced.

My dumbest investment

I shorted Apple right after the passing of Steve Jobs, thinking for sure the company would not survive without his genius. Several businesspeople in the tech world told me that Apple had a very sound business model and that shorting the stock was a bad idea. I did it anyway, thinking there was no way they could be right. During the time I had the stock short, it doubled in market value, and I lost about $26,000. I’m still shocked about that one. - L.C., online

The Fool responds: Your story offers several lessons. First, know that overconfidence can be costly. Don’t buy stocks without giving serious consideration to their risks, and don’t short stocks (essentially betting that they will fall in price) without considering that they might not fall or, worse, might rise.

Steve Jobs was indeed a critical part of Apple’s success and promise, but he wasn’t everything. The company is still a strong innovator, and it still has many solid products and services that are selling well. In fiscal 2015, for example, it sold 231 million iPhones, 37 percent more than in 2014, and while iPad sales dropped, they still numbered 54 million. Apple’s iTunes is another strong performer, and Apple Pay and future ventures could pay off well, too. Apple has been expanding its business in China, as well. Great companies have more to them than just a great leader.

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