Surprises can be unpleasant, as in: “Surprise! Your property taxes are going up 30% next year!”
Thankfully, surprises also can be wonderful, as in: “SURPRISE! YOU’RE A GRANDPA!”
Jack and Logan weren’t supposed to enter the world until late August, but the little guys insisted on leaving the comfort of my daughter-in-law Sammi’s womb on Friday, August 9.
Twin boys mean double the happiness for Sammi, my son Ben, and the entire Nadel and Lipkin families!
That same day, of much less importance to me but of great significance to plenty of others, investors got a pleasant surprise: Biopharmaceutical giant Amgen (AMGN) won a patent skirmish regarding its top-selling drug, rheumatoid arthritis medication Enbrel.
Said Amgen CEO Robert Bradway:
We are pleased with today’s decision recognizing the validity of these patents. Protecting intellectual property is critical to incentivize innovation and the large investments in research and development that are required to bring new medicines to patients and fully develop their therapeutic potential for patients.
Mr. Market cheered, and Amgen’s price skyrocketed in the last half-hour of trading, eventually closing nearly 6% higher for the day at $196.25.
Once I was able to stop looking at photos of Jack and Logan, I took a few seconds to digest the news about Amgen. As a long-time AMGN investor, I obviously was glad a judge’s ruling protected an important patent for the company until 2029 (pending the expected appeal).
I already had been planning to add to the Amgen position in DTA’s Income Builder Portfolio.
Now, when I execute a purchase order for 5 shares of AMGN on Tuesday, August 13, it will cost Daily Trade Alert a little more money.
Despite the bump, Morningstar Investment Research Center says Amgen is still trading well below its fair value price of $214.
I will examine Amgen’s valuation a lot more thoroughly in my post-buy article that will be published on Wednesday, August 14.
Catching Up With No. 1
Amgen was the very first stock we bought after launching the IBP on Jan. 16, 2018.
Pretty much everything I liked about this wide-moat company back then is still relevant: It has successful blockbuster drugs; it has promising newer products; it has an A credit rating from Standard & Poor’s; the dividend is robust and growing; and the company is financially strong.
(SimplySafeDividends.com)
In releasing a solid second-quarter report on July 30, Amgen also announced it was raising the low end of its full-year guidance for both sales and earnings.
Income Incoming!
And then there’s the dividend.
You know a company has an outstanding record of income growth when some investors are disappointed by “only” a 10% raise — as was the case when Amgen hiked its quarterly dividend from $1.32 to $1.45 this past winter. (Its 5-year growth rate is 19%.)
AMGN has long been a free-cash-flow machine; as the following FAST Graphs image shows, the company has generated plenty of FCF (orange line) to cover its generous dividend (white line) with plenty of room to spare.
Amgen’s 3% yield is sweet music to many Dividend Growth Investing practitioners, and it ranks in the upper half of IBP holdings.
Risky Business?
Like any company, Amgen is not immune to risks and challenges.
As I mentioned in my June 8 article about recent IBP addition UnitedHealth Group, politicians from both sides of the aisle are stumbling all over each other trying to come up with the best way to reduce drug prices and other health-care costs.
This has been going on for years, however, and even if some kind of legislation is passed, the strongest — such as Amgen — will emerge from it in the best shape.
All drug companies with established blockbuster products face challenges from biosimilars, so they must keep innovating and bringing out new successes. Amgen has done just that in recent years with Repatha (cholesterol) and Aimovig (migraines), as well as some biosimilars of their own.
And there’s nothing more frustrating to drug companies (and their investors) than spending many years — and many million$ — developing a product only to see it fail in trials.
Wrapping Things Up
The Income Builder Portfolio has 26 positions, and Amgen will be the 13th company that we will have purchased twice.
It has been a steady performer in its first 20 months within the IBP, but we’re all about buying quality businesses with growing dividends for the long term.
Personally, I have owned AMGN since 2015, and maybe one day I’ll include the company in portfolios I set up for my grandchildren’s future. I have a feeling Amgen still will be the kind of industry leader Jack and Logan will want to own.
As always, this is not a recommendation to buy any stock. Each investor should conduct his or her own due diligence.
— Mike Nadel
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