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! 😉
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:
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!