Motley Fool: Investing in health

Investing in health care stocks for the long haul is a no-brainer, given the aging population and everyone’s need for at least occasional medical care. So consider multibillion-dollar Medtronic (NYSE: MDT), the world’s largest medical device company by sales.

Medtronic runs four business segments: cardiac and vascular; minimally invasive therapies; restorative therapies; and diabetes. The cardiac and vascular group accounts for 38%, and the next two groups combined for almost 55% of Medtronic’s total revenue.

In fiscal year 2019, Medtronic generated $30.6 billion in revenue and spent 7.5% of it on research and development. Today, Medtronic owns more than 47,000 patents and gets nearly half its sales from outside the United States.

Medtronic has a solid pipeline of innovative products, such as robotic surgical equipment for minimally invasive therapies, a deep-brain stimulation device and the MiniMed 780G insulin pump.

The current economic environment is rocky and uncertain, but Medtronic is positioned well for it. It even makes ventilators, which are in great demand fighting COVID-19.

Medtronic has upped its dividend annually for 42 consecutive years and increased it at an impressive compound annual growth rate of 17% during that period. (It recently yielded 2.5%.) Long-term investors who can handle the market’s volatility should give Medtronic a closer look.

Ask the Fool

Q: Are gains from inherited stocks taxed? – N.P., Medford, Oregon

A: It depends. If they’re in a Roth IRA, where withdrawals are generally tax-free, there will likely be no taxation. In a traditional IRA, withdrawals will be treated as taxable income.

Meanwhile, if you inherit stocks that are in a regular, taxable account, there are some special rules. Imagine that you buy shares of Crusty’s Crab Shack (ticker: CRABS) for $20 apiece, and that you sell them when they reach $50 per share. You’ll be taxed on that gain of $30 per share (less commission costs).

But if you die and leave those shares to your children, it works differently. While your cost basis was $20 per share, your heirs’ cost basis is “stepped up” to the fair market value of the stock on the date of your death. So if the shares are at $50 when you die, that becomes their cost basis. If they sell them immediately for $50 per share, they will have no gain. If they sell them later at $60 per share, their gain will be just $10 per share. Learn more at IRS.gov.

Q: Must I work for a company to buy its stock? – C.E., Denham Springs, Louisiana

A: Not at all. Anyone with a brokerage account can buy shares of thousands of publicly traded companies – from Amazon and Apple to Zions Bancorp and Zoetis. Being an employee can sometimes help, though, if you’re offered the chance to buy shares at a discount.

Before doing any investing, read a lot about it – or read a little and start with a low-fee, broad-market index fund, such as one that tracks the S&P 500.

My dumbest investment

My dumbest mistake was selling my Amazon.com shares when they were priced in the $100s – because the company was earning low profit margins at that time. I now realize that profit margins are not that important for growth-oriented stocks. The shares are trading around $1,850 apiece now! – N.Y., online

The Fool responds: It’s definitely worthwhile to examine the profit margins of any company you’re invested in or thinking of investing in to determine how profitable it is, how profitable it is compared to its peers and whether its margins are growing or shrinking. Low profit margins (or no profits at all) are not ideal, but they’re not necessarily disqualifying, if you’ve delved deeply enough into the company and are convinced it will be very successful in the long run.

In Amazon’s case, it spent many years with little to no profits, but that was largely by choice, as it plowed as much money as it could into growing its business. It could have pulled back on that spending and been more profitable had it wanted to. It’s always worth looking into exactly why a company’s profit margins are low.

Amazon raked in about $280 billion in its last fiscal year and recently sported a market value near $920 billion – and that’s after its shares fell from nearly $2,200 in February back to $1,850 in late March.