Looking for a Smart Way to Use Your Tax Refund? Buy These 3 Stocks
If you're like most American taxpayers, you're getting a tax refund. The question is: What are you going to do with the money you get back from the IRS?
You could spend it, of course. An even better idea, though, is to invest the money. Over the long run, that option should pay off significantly. Here's why buying Celgene (NASDAQ: CELG), Medical Properties Trust (NYSE: MPW), and Gilead Sciences (NASDAQ: GILD) stocks is a smart way to use your tax refund.
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Growth stock: Celgene
Why buy Celgene? The biotech has produced tremendous growth in the past and continues to have strong growth prospects for the future.
A key reason for the historical and future growth is Revlimid. Celgene made nearly $7 billion from the blood cancer drug last year and expects sales to keep growing for several years to come. The company also is getting strong growth from another blockbuster blood cancer drug, Pomalyst.Otezla is providing the fastest growth for Celgene these days, though. Sales for the autoimmune-disease drug more than doubled in 2016 to just over $1 billion.
Celgene expects to grow earnings by an average annual rate of 22% over the next several years. Continued success for its current drugs will help, but the biotech also has several new big winners potentially on the way. By 2020, Celgene hopes to receive regulatory approval for seven drugs that could generate annual sales of $1 billion or more.
Income stock: Medical Properties Trust
If steady income in the form of dividends is more important to you than growth, buying Medical Properties Trust stock could be a great way to use your tax refund money. The healthcare real estate investment trust (REIT) currently pays out a dividend yielding nearly 7%.
Medical Properties Trust's portfolio consists of136 general acute-care hospitals, 79 inpatient rehabilitation hospitals, and 17 long-term acute-care hospitals. Most of these properties are in the U.S., but the company owns some properties in Germany, Italy, Spain, and the United Kingdom.
There are several reasons Medical Properties Trust should be able to keep the nice dividends flowing. Its customers typically have long-term leases with annual inflation-based increases built into the contracts. While hospitals can sometimes relocate, it's not extremely likely -- which means Medical Properties Trust's lease renewal rate is high. As a REIT, Medical Properties Trust must return at least 90% of its taxable income to shareholders.
Value stock: Gilead Sciences
Gilead Sciences might not have the growth of Celgene or the high dividend yield of Medical Properties Trust, but the big biotech is arguably one of the best value stocks on the market. Gilead's share price currently trades at less than 9 times expected earnings.
That low price stems from concerns about Gilead's declining hepatitis C virus drug sales. The primary culprit behind the lower sales is fewer patients: Gilead's Harvoni and Sovaldi cure most patients with hepatitis C.
Gilead continues to maintain its dominant position in the HIV market, however. The biotech also has a solid pipeline, with potential winners including experimental non-alcoholic steatohepatitis drug GS-4997 and autoimmune-disease candidate filgotinib, both of which are in late-stage testing. Gilead also appears likely to use its huge cash stockpile to make one or more acquisitions to boost earnings.
Crossover appeal
While Celgene is certainly a great growth stock, Medical Properties Trust a great income stock, and Gilead Sciences a great value stock, we can't pigeonhole these stocks too much. Each of the stocks crosses over into at least one of the other investing styles.
Celgene, for example, could be viewed as a value stock to some extent. Shares trade at 14 times expected earnings. Celgene's price/earnings-to-growth (PEG) ratio is 0.76. A PEG ratio below 1.0 for a growth stock is considered to represent an attractive valuation.
Medical Properties Trust hasn't grown tremendously over the past several years. However, the consensus among Wall Street analysts is that the company will grow earnings by an average annual rate of more than 16% over the next five years. The stock also trades at less than 14 times forward earnings. There's a case to be made that Medical Properties Trust is a growth stock and value stock in addition to being a solid income play.
What about Gilead Sciences? It's not a growth stock at this point because of its HCV franchise woes, although the right acquisition or two could change Gilead's outlook. However, the big biotech pays out a nice dividend, which currently yields 3.13%. It also has a very low payout ratio of 18.5%. Gilead isn't a bad pick for income investors.
So when you get your tax refund, think long-term. Whether you're a growth-oriented investor, a dividend hunter, or a value seeker, Celgene, Medical Properties Trust, and Gilead Sciences could be for you.
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Keith Speights owns shares of Celgene and Gilead Sciences. The Motley Fool owns shares of and recommends Celgene and Gilead Sciences. The Motley Fool has the following options: short June 2017 $70 calls on Gilead Sciences. The Motley Fool has a disclosure policy.