Motley Fool: Amgen a biotech blue chip

With a market value recently topping $110 billion, biotechnology titan Amgen (Nasdaq: AMGN) is a blue-chip company whose stock has been held back by bad news.

Revenue growth has been sluggish. Sales in the first three quarters of 2016 for its second-biggest product, bone marrow stimulant Neulasta, dropped a little year over year. Its top-selling drug, Enbrel, is facing stiff competition in the autoimmune disease market.

On the other hand, you won’t find many stronger biotechs than Amgen, which generates operating cash flow of close to $9 billion annually. Its cash stockpile (including cash, cash equivalents and marketable securities) approached $38 billion at the end of September. Amgen is also one of only a handful of biotechs to pay a dividend. It hiked its payout by 15 percent for 2017, and its dividend recently yielded 3 percent.

Then there are Amgen’s future prospects. Cholesterol drug Repatha could become one of the company’s top moneymakers. Amgen plans to announce results from a cardiovascular outcomes study for the drug in early 2017. Payers have erected barriers to reimbursement so far, but this study could go a long way in making Repatha more readily available to patients.

Amgen also has a rich pipeline. It’s introduced several products in the past two years, and its relatively new cardiovascular pipeline, along with an established cancer-drug portfolio, offers numerous pathways to growth in practically any economic environment.

Ask the Fool

Q: What does “street name” refer to? – F.B., Kankakee, Illinois

A: In the old days, you’d buy stock and receive a paper certificate. These days, most brokerages actually hold any stock you buy in “street name” (their own name) instead of putting the shares in your name and mailing you the certificates. This is routine, and the shares still belong to you. Many people prefer the new system, as it permits the shares to be sold more quickly, without your having to find and mail back the certificates.

You can learn more about brokerages and find an inexpensive one at fool.com/how-to-invest/broker.

Q: What’s the difference between market value and intrinsic value? – M.G., Santa Maria, California

A: Imagine Tattoo Advertising Co. (ticker: YOWCH). Its intrinsic value is what it’s really worth, based on factors such as its assets and debt, its anticipated growth rate and, ultimately, the amount of cash it’s expected to generate over its lifetime. Unfortunately, that’s not easy to determine, and different smart analysts will arrive at different numbers. Intrinsic value can change, too, if the company’s competitive position, performance or prospects change. A competitor offering a new and better product can shrink a company’s intrinsic value.

Market value, meanwhile, is what investors are willing to pay for a company, reflected by its stock price. It’s typically measured by calculating the company’s “market capitalization” (or “market cap”): If Tattoo Advertising has 100 million shares outstanding and the current share price is $80, then its market cap is $8 billion (100 million times $80 is $8 billion).

If a high-quality company’s estimated intrinsic value is significantly higher than its market value, then its stock is likely undervalued and worth considering for your portfolio.

My dumbest investment

I bought shares of Apple at $127 on the recommendation of The Motley Fool. Now the shares are down near $97 apiece. This was one of my biggest mistakes. – S.B., online

The Fool responds: It’s not necessarily a mistake. It is if you buy and hold for only a short time, expecting the stock to rise quickly, because stocks can be volatile. It’s also a mistake to hang on to your shares if you no longer have any faith in the company. But if you buy into a company you believe in when its stock price appears low and you hold for the long term, through ups and downs, you stand a good chance of making a profit.

You wrote to us about a year ago, and Apple shares have recently been around $120. It’s the company’s future that matters most, though, and while there is rarely widespread consensus about any company’s future, there’s a lot to like about Apple.

For one thing, it’s still trading at an attractive price, with a dividend yield near 2 percent. Revenue has slumped recently, but there has been strong demand for its iPhone 7. App Store sales have also been strong, and with the company’s massive cash hoard, it can pounce on opportunities and keep hiking its dividend. Of course, new products that generate a lot of excitement will also help. (The Motley Fool owns shares of and has recommended Apple.)