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Motley Fool: Cost-cutting at Biogen turns biotech company into promising stock purchase

The Motley Fool

The Motley Fool Take

Biogen Inc. (NASDAQ: BIIB) is one of the oldest and largest biotech companies, and its shares have recently been trading at attractive levels. The stock has been depressed in part due to a once-promising multiple sclerosis (MS) drug presenting weak results in clinical trials, but there’s much more to Biogen than that.

For starters, Biogen’s second quarter featured total revenue of $2.9 billion, up 12 percent over year-ago levels. Revenue was boosted by ongoing demand for Tecfidera, an oral MS drug that’s selling at an annualized $3.9 billion pace, and rising demand for Biogen’s long-lasting hemophilia drugs, Eloctate and Alprolix. Biogen’s cost-cutting is also helping, turning more of its revenue into earnings.

Biogen has a promising pipeline of drugs in development, too. Its Nusinersen may become the first-ever treatment for the leading genetic cause of infant mortality, spinal muscular atrophy, potentially bringing in more than $1.5 billion - if approved. Its aducanumab, a treatment for early Alzheimer’s disease, was recently granted “fast track” designation by the U.S. Food and Drug Administration. If it ends up approved, possibly in 2020, it could be a huge seller.

Biogen has one of the strongest balance sheets in biotech, has been aggressively buying back shares (which boosts the value of remaining shares), and sports double-digit top- and bottom-line growth rates. Consider it for your portfolio. (The Motley Fool owns shares of and has recommended Biogen.)

Ask the Fool

Q: What does comparing a company’s current assets to its current liabilities tell me? - H.L., Detroit

A: If you divide a company’s current assets by its current liabilities, you’ll get its “current ratio,” reflecting whether it has sufficient short-term assets (such as cash and expected incoming payments) to cover its short-term obligations (such as payments and interest due). The “quick ratio,” where you subtract inventories from current assets before dividing by current liabilities, yields results that are a bit more meaningful.

It’s smart to assess a company’s current debt situation, but remember that it shows you only one part of the company’s picture, revealing nothing about its long-term debt, efficiency, competitive position or valuation. Be sure to examine any portfolio candidate from different angles, looking into its profit margins, inventory levels, revenue and earnings growth rates and more. Checking out a company’s management is smart, too.

Learn more about evaluating and investing in stocks at fool.com/investing/basics/index.aspx and morningstar.com/start-investing.html.

Q: I know that I can buy shares of stock through a regular brokerage account, but I’ve heard that I can also buy shares directly from the companies themselves. How does that work? - R.W., Rutland, Vermont

A: There are many ways to buy and own stock. Brokerage accounts are one way, and you can profit from stocks though stakes in mutual funds, too. With hundreds of companies, you can also buy shares directly from the company, through Direct Stock Purchase (DSP) plans, Dividend Reinvestment Plans (sometimes referred to as “Drips”) and the like. These plans generally let you buy small chunks of stock, for small sums, and they charge low or no fees. Learn more at fool.com/school/DRIPs.htm, dripinvesting.org and directinvesting.com.

My Dumbest Investment

My first investment many years ago taught me a good lesson. I had read that you should invest in what you know. Well, I liked to sew, and at my favorite fabric shop I found lots of bargains, so I invested in it. After it filed for bankruptcy protection and I’d lost most of my investment, I realized that I had found lots of bargains because the company had been trying desperately to raise cash.

I learned to look at balance sheets and income statements. I’ve been doing that ever since, with much better results. I think you learn more from your mistakes than your successes! - P.D., Houston

The Fool responds: You’re right that mistakes can be quite valuable through the lessons they impart. Investing in what you know is generally good advice, but it has its limits. It’s smart to focus on industries and companies with which you’re very familiar - or ones with which you’re willing to become very familiar. You might consider companies in your employment industry or ones you patronize frequently in other parts of your life.

Don’t just blindly buy into any company that you love, though, because even if it’s a great long-term performer, it might be overpriced at the moment. Or maybe a closer look will reveal that it’s facing some serious challenges. Perhaps just start with companies or industries you know - and then start researching.