Motley Fool: Growth and value

Stocks are often categorized as either “growth” stocks or “value” stocks; growth stocks promise ballooning returns, and value stocks offer slower but steady growth at a relative bargain price. Cancer drug developer Exelixis (Nasdaq: EXEL) is both, making it particularly compelling.

Exelixis’ most popular drug is Cabometyx, treating patients with liver cancer or advanced kidney cancer. The drug aims to stop the growth and division of cancer cells as well as the growth of blood vessels that feed cancer cells, which can prevent tumors from growing and sometimes shrink them.

The company’s third-quarter results, released in October, show Exelixis’ net product revenue was $191.8 million, a 17.7% year-over-year increase. Cabometyx product sales of $187.4 million made up 98% of net product revenue and 69% of the company’s overall sales for the period. (The company also earns considerable collaboration revenue from deals with partners.)

Cabometyx might eventually generate further revenue from additional approvals, as it’s undergoing clinical trials for other cancers, including bladder cancer and prostate cancer.

Exelixis recently sported a forward price-to-earnings (P/E) ratio of only 21 and a price-earnings-to-growth (PEG) ratio of 0.43 – anything below 1 typically reflects a value stock.

The stock is not low-risk, but risk-tolerant long-term investors may want to take a closer look at it. (The Motley Fool has recommended Exelixis.)

Ask the Fool

Q: What’s behavioral economics? – B.W., Augusta, Georgia

A: It’s an academic field that applies psychology and other social sciences to how people make financial (and other) decisions – revealing that we don’t always make logical moves. For example, if people are told that a $5 bottle of wine costs $45, they’re likely to prefer it to one they’re told costs $5. In another example, naming its coffee cup sizes “tall,” “grande” and “venti” helps Starbucks charge more for them, as they’re not as easily compared to other purveyors’ small, medium and large sizes.

We’re often irrational in investing, too. We might leave money in a losing stock, hoping it’ll eventually recover, instead of accepting our losses and moving the remaining funds to a more promising stock. Economist Richard Thaler explains: “Losses have about twice the emotional impact of an equivalent gain. Fear of losses (and a tendency toward short-term thinking) can inhibit appropriate risk-taking.” On the flip side, irrational exuberance has led us into many market bubbles with wildly overpriced stocks.

Learn more in books such as “Predictably Irrational: The Hidden Forces That Shape Our Decisions” by Dan Ariely (Harper Perennial, $17), “Why Smart People Make Big Money Mistakes and How to Correct Them: Lessons From the Life-Changing Science of Behavioral Economics” by Gary Belsky and Thomas Gilovich (Simon & Schuster, $17) and “The Little Book of Behavioral Investing: How Not To Be Your Own Worst Enemy” by James Montier (Wiley, $25).

Q: How can I find out when a company will release its next earnings report? – D.L., Gallup, New Mexico

A: You can just call the company and ask. Or visit Finance.Yahoo.com, where you can type in its ticker symbol and see its next earnings date.

My dumbest investment

My dumbest investment was in shares of Fuse Science. It was 2011, and the company had recently signed an endorsement deal with Tiger Woods. Fuse made energy and electrolyte replenishment products that were delivered via drops – hence its ticker symbol, DROP.

I was excited by the company, thinking it would revolutionize the sports energy and medicine market. I did no due diligence and invested too much of my net worth in the company – I made all the classic mistakes. The company is now involved with drones, I believe. – S.F., online

The Fool responds: Fuse Science shares have been worth much less than a penny apiece for a long time now, and its website is gone. Even back then, there were ample warning signs, such as widening losses: The company lost about $80,000 in its fiscal year 2010, followed by a loss of $2 million in 2011 and $11 million in 2012. Indeed, the company only took in about $105,000 in revenue in 2012 – that’s less than many people’s salaries.

A big-name celebrity supporting a company can inspire confidence, which is what it’s supposed to do – but remember that the celebrity is typically getting paid in cash, not in shares.

It’s best to avoid any company with shares trading for less than $5; instead, look for a proven record of substantial and growing sales and earnings, with little (or manageable) debt.