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Spokane, Washington  Est. May 19, 1883

The Motley Fool: Not-so-bad cinical trial results

The headquarters of Amgen, the world’s largest biotechnology firm, is in Thousand Oaks, Calif.  (New York Times)
ANDREWS MCMEEL SYNDICATION

Shares of Amgen (Nasdaq: AMGN) started crashing in early November and didn’t improve when the company released data from a phase 2 clinical trial for its weight-loss candidate MariTide. That plunge has set the stock up for some serious potential gains in 2025.

Amgen’s stock price fell further because its monthly injectable drug helped people lose (on average) only around 20% of their body weight after 52 weeks – as opposed to the 25% that analysts were expecting. Too many investment decisions these days are based on whether something beats expectations – from earnings results to data from clinical trials. Amgen’s data didn’t show that participants’ weight loss had plateaued, suggesting that further weight loss could be attainable over longer periods of use; some patients also took MariTide less frequently than once a month.

The results indicate that MariTide is a promising treatment that could be a more attractive alternative to weekly injections. When the market overreacts like this, it creates an opportunity for investors to jump in and buy into a stock at a discount.

This top health care company recently sported an appealing forward-looking price-to-earnings (P/E) ratio of 13, well below the S&P 500’s recent forward P/E of 24. Amgen has a diverse portfolio of products, and its growing dividend recently yielded 3.5%. Long-term investors should give Amgen a closer look. (The Motley Fool recommends Amgen.)

Ask the Fool

Q. Does it make sense to sell my low-dividend-yield stocks and buy high-yield ones? – G.G., Rochester, Minnesota

A. It depends. High dividend yields are not always as great as they may seem. Remember that a dividend yield is arrived at by dividing a stock’s annual dividend amount by its current stock price. So if a stock’s price falls, its yield rises – and vice versa. Thus, a high yield may be tied to a stock that has fallen in price, perhaps because the company is struggling. If so, the company might actually reduce or suspend its dividend.

It’s also valuable to consider a dividend’s growth rate. A smallish dividend today can be a fat one in a few years if the company is increasing its payout regularly and significantly, as many do. Imagine a $2 annual dividend and a $3 one. Let’s say the larger one isn’t growing much at all. But if the smaller one is growing at around 8% annually, that $2 dividend will become a $3 one in about five years – and will likely keep growing. So sometimes a smaller dividend can be better than a bigger one.

Q. In my IRA, can I switch between different stocks and mutual funds? – T.L., Houston

A. If your IRA is held at a brokerage, you should be able to buy and sell stocks and mutual fund shares within it. You may be charged regular trading commissions for such trades, but you won’t be taxed on any gains while the money is in the account. (Learn about good brokerages at Fool.com/money.)

If your IRA is with a mutual fund company, you should be able to switch between its funds, but you probably can’t invest in any individual stocks.

My Smartest Investment

My smartest move in investing was years ago, with a video company that was talking about streaming. I invested thinking that might just work, considering how things were changing as far as being able to watch movies and shows on your phone or tablet, and how convenient that would be. Needless to say, that company was named Netflix, and it just took off. I made a pretty sum, so I’m really happy I was patient. – R.R., online

The Fool responds: Netflix has been one of the best-performing stocks over the past 20-plus years, so you certainly did well investing in it. Even more important is that you were patient and hung on through the company’s ups and downs.

Netflix began streaming content for its subscribers back in 2007. If you’d invested in it then, you’d be up by close to 30,000% – or, on an average annual basis, around 37% per year. That’s enough to turn a single $10,000 investment into close to $3 million.

Fortunes have been made by buying shares of great growth stocks early – and then hanging on. But finding these needles in a haystack isn’t always easy, and many growth stocks eventually flame out. So spread your money across a bunch of contenders – or just stick with the easier, safer and still powerful long-term wealth-building strategy of investing in broad-market index funds.

(Do you have a smart or regrettable investment move to share with us? Email it to TMFShare@fool.com.)