Motley Fool
Pharmacy benefits management company Express Scripts (Nasdaq: ESRX) has seen its shares tumble in recent months because of two major negative pieces of news.
First, it’s expected to lose its relationship with its largest customer, health insurer Anthem, in 2019, knocking out a big chunk of its earnings power. Second, Amazon.com may enter the business of delivering prescription medications.
On the plus side, the Anthem dispute may be a distant memory a decade from now. And as the population of older Americans increases, demand for prescription drugs should rise. Express Scripts’ size enables it to hold down costs better than most PBMs, which should help it grow over the long run. In the meantime, the company is benefiting from an increase in the use of generic drugs and mail orders, and it may be able to further boost its business through cost savings.
Express Scripts’ current risks naturally have investors jittery about the stock. Yet that’s exactly why its stock may be a great value at its recent depressed price near $63 per share. With its forward-looking price-to-earnings ratio near 9, much of the pessimism surrounding Express Scripts has already been priced into its stock, and it may very well turn out to be a bargain for today’s investors. (The Motley Fool owns shares of Express Scripts.)
Ask the Fool
Q: What should I spend some extra monthly money on – paying down my mortgage faster or investing it in a stock market index fund? – T.M., Norwich, Connecticut
A: Paying off your mortgage early is often worthwhile, especially if you’re nearing retirement, as few people want to be on the hook for mortgage payments in retirement. But whether it’s smart to prioritize paying off your mortgage depends on some factors, such as interest rates.
If your mortgage interest rate is 5 percent, then any extra principal you pay off will save you 5 percent in interest payments – which is like earning a 5 percent return. If you hope to earn the stock market’s long-term average annual return of roughly 10 percent, then that’s clearly more compelling than the 5 percent return.
Remember, though, that the 5 percent is much more of a sure thing than the 10 percent. This decision is easier when mortgage interest rates are high.
Q: When a mutual fund holds dividend-paying stocks, where do those dividends go? – D.D., Columbus, Mississippi
A: The dividends paid belong to the shareholders, not the fund company. Typically, when you first invest some money in a fund, you’ll be asked to specify whether you want to receive the dividends as cash payments or have them reinvested in additional shares of the fund.
After a fund receives dividends and before it distributes them to shareholders, the dividends’ value is added to the fund’s net asset value. Later, the NAV is reduced to reflect the departure of accumulated dividends. So don’t be alarmed if you see a fund suddenly drop in value one day – it might simply mean that a dividend distribution was made.
My dumbest investment
My dumbest investment was when I bought shares of electric carmaker Tesla for around $17 per share at its initial public offering (IPO) in 2010. I sold them at $37 per share in 2012. I can’t complain about the gains, but when I look at how much more the stock has grown, it feels like a dumb investment. It was recently trading at $330 per share! – G., online
The Fool responds: You did leave a lot of profit on the table, but at least you nearly doubled your money. It’s easy to look back with regrets once a stock has soared, but back when you sold your shares, you couldn’t have known just how the stock would perform in the future. (Indeed, we often recommend steering clear of IPOs for a year or two, to allow time for any overexcitement to die down and for the company to perform for a while as a public entity. Many IPOs soar at first and then return to Earth.)
Many people are bullish on Tesla’s future right now, due in part to its newly launched lower-priced Model 3 car as well as its battery technology and solar energy systems – but there’s reason to not be fully confident, too. The company has posted operating losses in all of the past 10 years, other carmakers are coming out with competitive electric cars, and its stock is viewed by many as overvalued.