Q: I’ve heard I should invest in stocks for the long term. But how long is that?
A: It’s good to shoot for at least several years, if not many years — as long as the company remains healthy and growing at a good clip, and as long as its stock price hasn’t gotten way ahead of itself. Many fortunes have been built by people who stayed invested in solid stocks for decades.
Keep taxes in mind, too, because long-term capital gains are generally taxed at a lower rate than short-term ones — 15 percent for many of us vs. our ordinary income-tax rate for short-term gains. For Uncle Sam, long term is at least a year and a day.
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Q: I’m considering investing in a company that seems to be doing everything right: Sales and earnings have been growing at double-digit rates and there’s no debt. And yet the stock keeps falling. Am I missing something really obvious?
A: Maybe. You need to look more closely. Even steep growth rates may be lower than previous levels. Check out expectations, too. If the company and/or Wall Street analysts expect slower growth in the future, that can dampen enthusiasm for the stock.
Perhaps competitors are fast advancing on the company, or questions have been raised about its management or offerings. For investors, the company’s future matters more than its past.
Then there’s the stock price itself. Since the company has been growing briskly, investors may have bid up the stock to lofty heights, well above its intrinsic value, and the price may now be settling back to more reasonable levels.
Dear Fool: One investment that looked like it would be my dumbest was in a company with promising technology that developed renewable and synthetic fuels.
It could convert feedstock into synthetic diesel and jet fuel, for example. It was doing business with the military and seemed quite promising, but had trouble getting to full production capacity and producing on a large scale.
Worst of all, it conducted a 1-for-10 reverse split of its stock to prop up its price and not get delisted by the Nasdaq Stock Market. The stock has rebounded lately, though, so my pain has eased.
The Fool responds: This is a good reminder that while a company might have a terrific technology, product or service, it might not be a great investment if it can’t win in the marketplace and deliver robust growth.
This company was a penny stock for years and has been quite volatile. It’s smart to be wary of stocks trading for less than $5 per share and ones with more promise than profits.
Intel (Nasdaq: INTC) stock hasn’t exactly been on fire lately. Some think the stock should be sold, due to Intel’s flagging revenue growth, its dependence on a weak PC market for much of its business and softness in prices for its wares.
The company still has a lot going for it, though, and much to offer investors. For one thing, it has been spending heavily on research and development and building a bigger position in the fast-growing mobile-device sphere and other arenas.
For example, it has been partnering with others to develop offerings for the health-care market, such as home-based health technologies and computing systems for hospitals.
It’s even looking at the TV business, with its OnCue service offering viewing options over broadband Internet connections.
Finally, consider the company’s dividend, which will pay you handsomely while you wait for business to pick up.