With the stock market trading near an all-time high, it’s hard to find undervalued stocks. You can find some in the biotechnology sector, though. Consider Celgene (Nasdaq: CELG).
Celgene has been a terrific performer over the years, thanks in large part to its mega-blockbuster blood-cancer drug Revlimid. Sales of this drug grew by 20 percent last year, to $6.9 billion, making it one of the top-selling drugs on the planet. Combine that with growing sales of its other hit drugs such as Pomalyst/Imnovid and Otezla, and Celgene’s top line expanded by 22 percent last year. That’s pretty good for a company with a market cap recently near $90 billion.
There’s reason to believe the growth will continue. Celgene has plenty of trials underway to expand the labeling for its current product lineup, and it has a pipeline packed full of potential. Its ozanimod drug could reach peak annual sales of between $4 billion and $6 billion if it ultimately wins approval for all three indications it’s targeting – multiple sclerosis, Crohn’s disease and ulcerative colitis. Celgene’s management is so confident that it has projected annual revenue topping $21 billion by 2020, up from the expected $13 billion in 2017.
Celgene’s stock was recently trading with a forward-looking price-to-earnings (P/E) ratio of 16 – a reasonable price to pay for a terrific business. (The Motley Fool owns shares of and has recommended Celgene.)
Ask the Fool
Q: Is the number of shares of a company that can be bought limited in any way? – H.D., Lake City, Florida
A: Yes, indeed. For starters, companies don’t have unlimited shares. They issue a certain number when they go public via an “initial public offering” (IPO), and they may issue more later, via secondary offerings. (The more shares that exist, the smaller stake in the company each one represents.) A company might have only a portion of its value in shares trading publicly, too. If its founder, for example, holds, say, 51 percent or 65 percent of the company, then she still controls it.
You could buy all available shares of a company, but by doing so, your sudden demand for the shares would drive up the price. (That’s why major investors don’t want to publicize their trading, and why they try to buy gradually, in increments.) Of course, that’s costly. Clorox, for example, has about 130 million shares outstanding, and you’d need more than $15 billion to buy them all.
Additionally, once anyone owns more than 5 percent of a voting class of shares, he must file a report alerting the Securities and Exchange Commission.
Q: Must I sell my IRA stocks when I turn 70-1/2? – T.S., Honolulu
A: You have to take “required minimum distributions” (RMDs) from traditional IRAs once you turn 70-1/2. They’re generally taxable, and you may need to sell some stocks or other holdings in the IRA to generate the cash to withdraw.
Roth IRAs have no RMDs. And if the Roth IRA is at least five years old and you’re older than 59-1/2, distributions are tax-free. Learn much more about IRAs at fool.com/retirement/index.aspx.
My smartest investment
I bought shares of Green Mountain Coffee Roasters, maker of the Keurig machines, a few years ago for $18 per share. I sold a few months later when they hit $61, stupidly taking a short-term capital gain. But the stock kept going up. Regretting my sell decision, I bought in again at $90. Then it peaked and began to tank, based on a debunked report by some bigwig analyst on Wall Street.
The fundamentals still looked good to me, so I bought more at $60 and at $40 on the way down. When shares hit $23, I held on because it still looked like a good company. I’m glad I did, because shares rose again, topping $100.
The lessons I learned were to do my own research and to buy and hold for the long term, as long as the company remains fundamentally solid. I’ve also learned to sell my poorest performers instead of my big winners. It’s OK to have a loss, as that can be used to reduce taxes. – D.K., Shelby Township, Michigan
The Fool responds: Those are good lessons. Green Mountain Coffee Roasters changed its name to Keurig Green Mountain, and in late 2015 was bought by some private investors, who paid a record-breaking premium – $92, for shares that had previously closed at $52. Long-term gains are preferable to short-term ones, as their tax rates are lower for more people.
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