Insight and analysis about stocks to help investors stay informed.
ASK THE FOOL
Q: Please explain the difference between buy-side and sell-side analysts.
A: They both study companies and make buy and sell recommendations, but buy-side analysts work in-house for institutions such as mutual funds and pension funds that buy assets, while sell-side analysts are often employed by banks and brokerages, providing broad analysis and recommendations to their customers. (Getting customers to trade generates commission fees for a brokerage.)
You may be able to access many sell-side analysts’ research reports through your brokerage.
Q: What’s a REIT’s “FFO”?
A: The acronym REIT stands for Real Estate Investment Trust, a special kind of company that typically owns many properties and collects rents from tenants; a REIT (rhymes with “beet”) often focuses on a niche such as offices, laboratories, nursing homes, hotels, shopping centers or apartments. REITs are required to pay out at least 90 percent of their taxable income as dividends. (As examples, Public Storage, American Tower and Weyerhaeuser are all large REITs.)
Investors studying companies often look at net income, which reflects the bottom-line profit after expenses have been subtracted from revenue. With REITs, the book value of their properties is decreased over time, with the depreciation charged against their net income, reducing it. In reality, though, the value of those real-estate properties probably isn’t falling, and may well be growing.
Since a REIT’s net income tends to understate its health, investors should look at its “funds from operations,” or FFO, instead. The FFO metric ignores the effect of depreciation and other noncash charges, so it gives you a better picture of the REIT’s true performance. Learn more about REITs at REIT.com.
MY DUMBEST INVESTMENT
A fastest-growing implosion
Dear Fool: I bought into the hype and bit the dust big-time on a penny stock. It taught me to invest more gradually and be leery of penny stocks.
On a positive note, I invested a tenth of my assets in some Fool recommendations and have recouped more than my cost.
The Fool responds: Penny stocks are a great way to lose most or all of your money. The stock you invested in, from a British company specializing in mobile payments, had many investors hopeful — but like many penny-stock companies, it didn’t have a long track record of solid growth and profits. Instead, investors liked its story, which included promising technology; partnerships with Visa, Mastercard and IBM; appearances on lists of “fastest-growing” companies; and a new CEO who also hailed from Visa.
But as with many promising companies, things didn’t work out as hoped, in part because this company faced some deep-pocketed competition. Visa sold its stake in the company in 2014, and the stock lost close to 90 percent of its value in 2015 — a year in which the company also lost its CEO and other executives.
Once worth more than a billion pounds sterling, it ended up being bought by another business for 70 million pounds.
For best results in investing, stick with proven and profitable companies. We’re happy that you recouped your losses — albeit via other stocks.
THE MOTLEY FOLL TAKE
What’s up, doc?
Not all medical needs require extensive in-person visits with your doctor. Sometimes all you need is a visual inspection, a question-and-answer session, an order for lab work or a prescription.
Enter Teladoc Health (NYSE: TDOC), a leader in telemedicine, in which patients see providers via telecommunications services such as video conferencing. If you can get the medical care you need without traveling to a doctor’s office, it’s a win for you. If your doctor — or some doctor in your network — can spend more time on diagnosis and treatment while spending less money on overhead costs, it’s a win for the doctor. With the cost of a telemedicine consultation lower than a traditional visit, it can be a win for both.
Teladoc has grown quickly both organically and through acquisitions, and now claims customers representing roughly 40 percent of the Fortune 500. Its revenue grew 62 percent year over year in its third quarter, to $111 million.
Though Teladoc has been posting losses instead of profits, that’s because it’s spending about half its revenue on sales and marketing, growing its market share and cementing its leadership in the industry now so it can focus on profit later.
With a long-term growth opportunity in telehealth, Teladoc could be a big winner over the next decade. (The Motley Fool owns shares of and has recommended Teladoc Health.)