Motley Fool: Blue chip biotech

Amgen’s (Nasdaq: AMGN) shares have been trading near where they were a year ago, presenting a buying opportunity for long-term investors interested in the potential of biotechnology. Its price-to-earnings (P/E) ratio has been in the mid-teens, which is on the low side for a blue chip biotech company – especially one that recently sported a juicy dividend yield near 3%.

What’s keeping investors at bay? Amgen is going through a radical makeover. Its newer growth products – such as the migraine treatment Aimovig and cholesterol-lowering drug Repatha – haven’t been able to fully offset declining sales of the biotech’s portfolio of aging superstars. Amgen’s top line, in fact, is forecasted to dip by 3.9% in 2019. Another area of concern is Amgen’s oncology portfolio. Some of the company’s most important early-stage cancer assets simply haven’t lived up to expectations.

Still, there are solid reasons to consider buying Amgen now. First, its recent acquisition of the psoriasis medicine Otezla is expected to immediately boost earnings and quarterly sales. The company should, in fact, return to top-line growth by next year. Amgen also has one of the largest cash positions in its industry, so there’s a good chance it will pursue more acquisitions to spur more growth.

Amgen is well-equipped to get through its headwinds, so consider learning more about it before the rest of Wall Street wakes up. (The Motley Fool has recommended Amgen.)

Ask the Fool

Q: What’s a mutual fund’s tax efficiency, and do I need to pay attention to it? – K.R., Dayton, Ohio

A: A mutual fund’s tax efficiency is related to its turnover ratio, which reflects the fund’s buying and selling activity. If a fund has a low turnover ratio, that means that its managers are keeping the securities in the fund longer after buying them. If they’re not selling various holdings frequently, then there will be fewer or smaller taxable distributions of gains to shareholders. That’s generally a good thing. Funds focused on generating income will often be less tax-efficient because the dividends and interest they collect and send to shareholders are typically taxable income.

You don’t have to worry too much about tax efficiency for funds in tax-deferred accounts such as traditional IRAs or 401(k)s. Dividends, interest and capital gains accumulate in them on a tax-deferred basis until you withdraw your money. Such accounts are good places for your least tax-efficient investments, such as stocks you plan to hold for less than a year and mutual funds with significant short-term capital gains, dividends and/or taxable bond interest.

Q: What’s a tax inversion? – D.F., Fayetteville, North Carolina

A: It’s a move a company makes to reduce its taxes. It involves becoming a subsidiary of another company in another country – one with more favorable tax rules.

Many American companies have done this. For example, in 2015, the huge medical device company Medtronic bought the Irish health care concern Covidien for about $50 billion, and now has its headquarters in Ireland, which has lower corporate tax rates.

Tax inversions have been criticized for robbing the United States of tax revenue, and there have been calls to rein them in.

My dumbest investment

My dumbest investment is kind of embarrassing … Beanie Babies. – W.T.S., online

The Fool responds: Younger readers may not know about Beanie Babies, but they were once a hot toy, collected by many kids. Then adults started collecting them, thinking they’d be valuable one day.

The plush bead-stuffed creatures were released by Ty Inc. in 1993 and cost $5 each. By 1997, there were 181 different kinds, with the original nine valued at about $50 apiece. Some Beanie Babies did end up trading hands for thousands of dollars, but their value hasn’t held up very well – though the Ty company raked in a lot of moolah. A 2018 Wall Street Journal article cited a collectibles store in Las Vegas that didn’t want any, and a collector who wasn’t able to sell them for even $2 each.

The Beanie Baby craze is just one in history’s long line of speculative bubbles. A particularly famous one occurred in the Netherlands in the 1600s, where tulip bulbs soared to ridiculous prices, with single bulbs worth more than the price of a home, and one bulb exchanged for an entire brewery. Of course, demand – and prices – eventually imploded.

Yes, some collectibles can make and have made some people wealthy, but it’s a risky game. If you see people snapping up certain items in a frenzy, expecting future riches, be skeptical and tread carefully.