Danish drug giant Novo Nordisk (NYSE: NVO), a kingpin in the diabetes space, disappointed Wall Street and investors following the release of its third-quarter results in late October. The company cut its long-term profit growth forecast from 10 percent to 5 percent and pointed to insulin competition in the U.S., causing it to lower prices in order to remain on insurer formularies. As a result of its falling share price, Novo Nordisk’s dividend yield shot up and was recently at an attractive 4 percent.
However, the company has demonstrated repeatedly that it can bring innovative drugs to market. For example, sales of its next-generation insulin product Tresiba increased by 184 percent in the first nine months of 2016, and are expected to continue to rise, with some expecting $3 billion in peak annual sales.
The steady rise in global diabetes trends offers Novo Nordisk the chance to succeed simply through sheer volume, even if profit margins are being pressured in the near term. Within the U.S., arguably the most important market for Big Pharma, the percentage of the population diagnosed with diabetes has grown from 0.87 percent in 1959 to 7.02 percent as of 2014, according to the Centers for Disease Control and Prevention. Novo Nordisk is a drug company that long-term investors seeking income should consider. (The Motley Fool has recommended Novo Nordisk.)
Ask the Fool
Q: What are “vested” and “unvested” options? – B.W., South Bend, Indiana
A: You’re “vested” when you become eligible to take ownership of something, or to exercise an option.
Imagine that you work at Sisyphus Inc. (ticker: UPDWN) and receive stock options on 100 shares of company stock. Let’s say that over the next four years, 25 percent of the options vest each April 1. So on April 1, 2017, you’ll be able to exercise the option and buy 25 shares at the specified price. A year later, another 25 shares will “vest.” On April 1, 2020, you’ll be “fully vested” and can buy all 100 shares (or any shares you haven’t bought yet) – if you want to.
Companies structure rewards this way to motivate employees to stick around. Vesting schedules can vary, stretching over a few or many years.
Q: If I sell a stock that’s in my Roth IRA for a loss, can I deduct the loss when I eventually withdraw money from the account? – R.T., Richmond, California
A: Sorry. You can deduct investing losses generated through regular brokerage accounts, but IRA accounts work differently. If you follow the rules, you’ll pay no taxes on your Roth withdrawals, but you’ll also get no tax benefits from losses. Imagine investing $5,000 per year in your Roth and earning an average annual gain of 8 percent. In 25 years, you’d have more than $360,000, and you’d be able to take it all out tax-free!
Traditional IRAs work a little differently, offering you an upfront tax break by letting you shrink your taxable income by the amount of your contribution. They, too, don’t permit deductions for losses within the IRA account. Learn more at fool.com/retirement.
My dumbest investment
My dumbest investment was following the advice of a TV investing pundit, who recommended buying more and more stock in the Brazilian mining company Vale. I ended up with more than 1,000 shares, and lost 12.5 percent of my retirement. He said, “Oh, well.” – B., online
The Fool responds: When listening to financial gurus or reading their recommendations, it’s important to remember that you probably don’t know just how skilled they are and what their full track record is. Many will crow about some great calls they’ve made, but they won’t be so eager to mention bad ones. Even with good calls, you typically won’t hear about it when they change their minds, and you may end up hanging on to shares they no longer believe in.
Keep in mind, too, that even the best stock analysts and investors will occasionally be wrong. That’s why it’s smart to be fully engaged in your investing, knowing your investments well and following their developments, so that you’ll know if and when they go off course.
Be wary, too, of putting too many eggs in one basket. That 12.5 percent represented a full eighth of your portfolio. Vale had some terrible years recently, in part due to falling commodity prices. It has more than doubled over the past year, but is still well below its levels of a few years ago.
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