The biotech company AbbVie (NYSE: ABBV) has a lot going for it, such as a dividend that recently yielded 3 percent.
AbbVie’s business is strong. It recently reported solid third-quarter results, with its top drugs Humira and Imbruvica posting impressive year-over-year sales growth. It just launched a new hepatitis C virus drug, Mavyret, which has significant potential.
Some worry about AbbVie’s reliance on its autoimmune disease drug, Humira, which recently generated about two-thirds of the company’s $28 billion in annualized sales. But there’s more to AbbVie’s future than Humira. AbbVie has a deep pipeline of drugs in development and expects to have more than 20 new drug or indication approvals by the end of 2020.
AbbVie has been spending billions of dollars on acquisitions and research and development, and it aims to become a top player in oncology. In 2015, it spent $21 billion to buy 50 percent of the rights to the blood cancer drug Imbruvica, which has seen fast-growing sales. It also spent more than $5 billion to lock up Rova-T, a cancer drug in clinical trials.
Even with its attractive dividend, solid business fundamentals and strong growth prospects, AbbVie stock is still relatively inexpensive. Shares recently traded at a price-to-earnings ratio of less than 15. With earnings projected to grow by 14 percent annually over the next few years, the stock should have plenty of room to run.
Ask the Fool
Q: I want to buy some stocks. Is there a best time of day, week, month or year in which to do so? – H.L., Lubbock, Texas
A: Not really. Guessing about it is “market timing,” which is not a road to riches. Instead, invest when you’re ready – once you have done enough research to be confident the company is financially healthy and growing, has sustainable advantages over its competitors and has a promising future. You also want the current stock price to be low enough that it offers you a margin of safety and a good chance of growth. Some companies may be wonderful but so overpriced that they’re more likely to retreat for a while than to keep advancing over the next year or so.
Estimating a company’s fair value is easier said than done, though. Measures such as price-to-earnings ratios and price-to-cash flow ratios can help. Favor ratios that are lower than average for the company and lower than those of peers. To polish your analytical chops, keep reading and learning about investing.
Once you’re confident you’ve found a great company selling at a good or great price, that’s the best time to buy.
Q: Should I invest in “balanced” mutual funds? What are they? – P. D., West Palm Beach, Florida
A: Balanced funds are invested in both stocks and bonds, offering gains from stock appreciation and stock dividends as well as income from bond interest. Many fund families offer balanced funds, often with different proportions of stocks versus bonds.
You don’t necessarily need a balanced fund, though, since you can invest in separate stock and bond funds. It’s also good to diversify with some international holdings, as many foreign economies are growing much faster than America’s.
My dumbest investment
Without a doubt, my dumbest move was going with a professional money management company that had advertised heavily. They courted me aggressively, and I liked their style. I had doubts before I signed up, though, and they all came true.
During the time that they were managing my money (while I paid them 1.25 percent of my assets annually), they lagged the market. Even during the big post-recession recovery, my stocks were down when the Dow was up. And this from a manager who marketed himself as a financial guru. I got a lot of flak from them when I finally ditched them. – M.S., online
The Fool responds: There are few guarantees when you have others manage your money. Some managers are skilled, while others are less so. Some have a lot of integrity, while others don’t. And some are simply lucky during the period you invest with them, while others aren’t. That common 1.25 percent management fee is a problem, though, because you pay it no matter whether your investments grow or shrink. The company might purport to offer market-beating returns, but if the market grows by 10 percent in one year, you would need to earn more than 11.25 percent in order to beat it, because of the fees. There’s no shame in simply tracking the market’s return via an index fund or two. Many charge tiny fees, too.
Local journalism is essential.
Give directly to The Spokesman-Review's Northwest Passages community forums series -- which helps to offset the costs of several reporter and editor positions at the newspaper -- by using the easy options below. Gifts processed in this system are not tax deductible, but are predominately used to help meet the local financial requirements needed to receive national matching-grant funds.
Subscribe to the Coronavirus newsletter
Get the day’s latest Coronavirus news delivered to your inbox by subscribing to our newsletter.