ASK THE FOOL
Beware of commodities
Q: Is it OK to consider investing in commodities? Is it really that risky?
A: Yes, investing in commodities is very risky. According to the U.S. Commodity Futures Trading Commission, “The commodity futures and options markets are high-risk investments, and you can lose your entire investment rapidly.”
Commodity investing involves agreements to buy or sell a certain amount of a commodity (examples include silver, gold, zinc, crude oil, gasoline, cotton, lumber, rubber, soybeans, sugar, coffee, wheat, corn and even interest rate products and currencies) at a specified price on a specified date in the future. That’s very different from being a long-term shareholder of a company’s stock, where you’re an actual part-owner of the company, aiming to benefit from its growth over time.
Commodities can seem appealing because of leverage: You can often buy items by putting less than 10% down. If you buy $50,000 of sugar for $5,000 and it doubles in value, you’ve made a lot of money. If it falls in value, though, you can lose more than you originally invested! Smart investors have lost plenty in commodities, and most folks should steer clear.
Q: Where can I find information on colleges and financial aid?
A: For college planning in general, along with information on specific colleges and/or the ability to search for available scholarships, click over to CollegeBoard.org, Petersons.com, CampusTours.com, Fastweb.com, Scholarships.com or Unigo.com. You should not have to pay to look up any scholarships.
You’ll find more information on financial aid and the all-important Free Application for Federal Student Aid (FAFSA) form at StudentAid.ed.gov and FinAid.org. Check with your high school for information on local scholarships, too, as those tend to have less competition.
MY DUMBEST INVESTMENT
Sinking shipping company
Dear Fool: My dumbest investment happened several years ago. I was chasing dividends and ran across a shipping company based in Greece. The company was paying out 90% of its income in dividends, and its dividend was yielding a whopping 12%!
Unfortunately, the stock started heading south, and I bought more shares, repeatedly, thinking they were becoming more and more of a bargain. I’m sitting on a 99.9% loss now — but I learned a lot of lessons from it all.
For starters, I didn’t appreciate that any company paying out most or all of its earnings as dividends won’t have much left over for reinvesting in and growing its business. I based my purchase decision on a single positive article I read, while ignoring negative coverage of the company that pointed out issues such as its problematic debt load.
I didn’t realize that when the company said it could raise money any time by issuing more shares, it would do so — diluting the value of existing shares like mine. I didn’t do any extra research before committing even more money to this sinking investment, either.
Now I assume things are too good to be true until proven otherwise.
The Fool responds: You became a much savvier investor through this process. The stock is now in extreme penny-stock territory, and the company’s market value is now lower than the price of many average houses.
THE MOTLEY FOOL TAKE
A biotech contender
Vertex Pharmaceuticals (Nasdaq: VRTX) dominates the market for treating cystic fibrosis (CF), a life-shortening disease with limited treatment options. The company revolutionized treatment when it launched its drug Kalydeco in 2012, did so again when it rolled out Orkambi in 2015, and did so once more with Symdeko in 2018.
An increasing number of cystic-fibrosis patients with different mutations have become eligible for treatment as these therapies have launched. As a result, Vertex Pharmaceuticals’ revenue has catapulted higher — for instance, in 2018, its revenue increased 40% year-over-year to $3 billion.
Vertex’s approved drugs help about half of CF patients. However, the company has two distinct triple-drug therapies in development that, if approved, could allow it to treat up to 90% of patients.
On top of that, it’s developing drugs to treat diseases other than CF. It hopes to soon advance its pain drug VX-150 into a pivotal late-stage study, and it’s working with CRISPR Therapeutics on developing gene-editing therapies for the rare blood diseases beta thalassemia and sickle-cell disease. Vertex’s big cash stockpile should help it beef up its pipeline over time.
Recently trading with a price-to-earnings (P/E) ratio in the low 20s, Vertex’s stock has seemed neither overvalued nor a screaming bargain. Still, it’s poised to reward long-term investors.