Portfolio Update: New Subtraction and Addition (EMR and CELG; April 06, 2015)

Celgene

 

It’s not really my style to trade stocks as I much prefer the strategy of Buy and Hold. However, yesterday morning, I used the upswing in the market to exit out of a position and enter into another one.

Yesterday, I sold 100 shares of Emerson Electric (EMR) at $57.47/share. After fees, I had $5,704.05 in freed up investment capital.

Since I already knew what I wanted to do, immediately after the transaction posted, I used the proceeds to purchase 50 shares of Celgene Corporation (CELG) at $114.00/share.

My original cost basis with EMR was $57.00/share, and after all was said and done, I pocketed $37.08 over the span of exactly one month (purchased on 3/6/15 and sold on 4/6/15). So, in essence, you could treat it like I collected a one-time dividend for my troubles… which will be taxed at an unfavorable rate… doh! 😉

Thoughts

Conflicting strategies? Yeah, you could say that, for sure. With EMR, you have a dividend stalwart that has been consistently paying out an increasing dividend for 50+ years. You could call EMR old reliable, because that’s exactly what you are buying into with this company. At today’s prices, I still think that EMR is a solid buy, but when I sat back and analyzed my overall portfolio, I wasn’t too comfortable with tying up so much capital into this one particular stock, at this time.

As readers may know, my strategy with stock investing in a taxable account is to create a blended portfolio that combines both dividends and growth.

The market is frothy right now, and I could be taking a huge gamble by swapping out of an attractively priced dividend growth stock for a hyper-growth one like CELG, but I was ultimately willing to take that risk.

CELG is the third biotech stock I’ve added this year, in addition to Gilead Sciences (GILD) and Amgen (AMGN). Many consider CELG to be one of the 4 horsemen of biotech (along with GILD and AMGN), and the company most primed for growth over the next few years. The only horsemen I don’t own is Biogen (BIIB). Funny, I always thought I would be collecting railroads, not biotechs!

Celgene focuses primarily on cancer treatments. As a whole, the biotech industry has been on an absolute tear over these past few years, and many would argue that we are still in the early innings of the ballgame. On the flipside, you could justify that things are getting out of hand and a massive correction will be in store shortly. In any case, biotechs are inherently risky plays since so much of their success depends on a robust pipeline to keep increasing revenues. Competition is fierce, and drug treatments are always susceptible to patent expirations. Further, research costs billions of dollars and most prospective treatments won’t win FDA Final Approval.

Either way, over the long-term, I feel like I want to be a part of the biotech growth story. My intentions are not to trade frequently, so if there is a significant pullback, my plans will be to simply buy even more shares, as long as the growth story hasn’t changed.

Yes, the 3% reliable dividend from EMR is very attractive, but at this stage of the game, I’m going to roll the dice and place my bets on hyper-growth.

CELG isn’t cheap by any means, as the current P/E is 47.5, and the forward P/E is 17.9. CELG also does NOT currently pay a dividend, which is always a factor in my decision to buy a stock.

Here are some key stats from Morningstar, where CELG currently holds a 3-star rating:

Screen Shot 2015-04-07 at 11.21.02 AM

With that said, I have about $20,000 in capital tied up into biotechs, or roughly 20% of my taxable stock portfolio. That’s an allocation I’m comfortable with… As usual, I like to balance out some of my more aggressive moves with conservative ones, and I’ll most likely do so again in the future.

It’s a tough balancing act, trying to figure out how to partition between growth, reliability, and passive income…

I’m a fan of growth stories, though, and hopefully this one pans out in the future… I’ve placed my bets!

 

Happy Investing!

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Roadmap2Retire
5 years ago

Surprised to see you exit a position in just a month and pick a growth stock. But whatever makes you comfortable and if you are willing to take the risk, go for it. Ive been reading up about CELG lately and I like it. I wish it paid dividends…and like you said – its like the 4 horsemen of biotech – and I would love to own them all. I am still looking to add AMGN to my portfolio and will look at GILD sometime in the future. I havent really read much about BIIB to have an opinion, but… Read more »

Mark
Mark
5 years ago

darn, I was all ready to congratulate you on your exit of EMR – a play I stated was a dubious purchase from the get go. Unfortunately you’ve jumped out of the frying pan and into the fire. Your scars will be harsh reminders of the burn you will take with owning biotech stocks at this juncture. The name of the game is buy low sell high, not buy at nose bleed heights and hope for the best. …. A moment of silence for the money that FI just sent to the graveyard. Obviously my heart isn’t for you to… Read more »

Mark
Mark
5 years ago
Reply to  FI Fighter

I am the crystal ball. Shoot me an email I’ll be happy to send you a snap shot of my returns. I’m not making 1000% returns in 1 day in penny stocks or anything absurd like that. I am an investor like you except instead of only looking at financial ratios (which is important) I study fundamentals ANDY technicals. That is why the writing on the wall for biotechs screams get out! I would honestly rather hold toxic mortgage loans in 2006. (Ok that’s an exaggeration) but you will take a blood bath in biotech. But in one account I… Read more »

Mark
Mark
5 years ago
Reply to  Mark

Also thank you for the celg offer but you can just send me an ? watch and we can call it even. With the $ I make you, you can be Oprah and buy one for every member in the audience on this forum.

Mark
Mark
5 years ago
Reply to  Mark

AppLe

Mark
Mark
5 years ago
Reply to  Mark

Deal and if you don’t follow my advice you can declare early bankruptcy and I’ll give you food stamps in the form of my quarterly tax payments 😉

All Good fun. Best of luck buddy!

Ps get out of bio stocks

The Professor
5 years ago

I wouldn’t beat yourself up too much over P/E ratios. PEG ratios, in my view, are the most important. When you look at CELG’s PEG ratio, it becomes much more attractive. I’m more of a GILD fan myself, so I’m glad you are as well!

The Professor
5 years ago
Reply to  FI Fighter

Is GILD’s PEG 2.0? For some reason, I thought it was below 1, but I don’t have their latest 10-K handy for me to check the math.

I’m also very jealous that you get to buy individual stocks. The only ones I have are from a couple years ago. I have to buy ETFs now because of securities laws, but buying individual stocks are so much more fun!

The Professor
5 years ago
Reply to  FI Fighter

That sounds better. I’m assuming the real PEG may be even lower than that because my guess it that Yahoo doesn’t subtract out GILD’s cash when it’s calculating the P/E ratio.

Here’s to GILD!

Martin
5 years ago

Not my style either. I usually do not sell dividend stocks at all. If for some reason I do not like the stock (consider it expensive) I just do not invest new money in it and leave it paying me a dividend and invest elsewhere, but do not sell unless they cut the dividend. I rather wait and save enough to buy a new holding. But you have to do what is best for your portfolio to meet your target allocation.

No Nonsense Landlord
5 years ago

You would be better off tax-wise with a Biotech ETF. Especially if you can get a ETF without trading fees. FHLC is one I like.

Bryan
Bryan
5 years ago

You people sure do like to over complicate this investing thing… And no offense Mark, but let us know what your returns are after 5 years compared to market. You might beat it, but doubt it. And hell, even if you do beat it, who is to say that is the right benchmark for your portfolio???

Don’t take the above too seriously, but seriously stick to the index.