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THE MOTLEY FOOL
Ask the Fool
Published: August 26, 2021
Q. What’s the "Internet of Things"? — C.D., Odessa, Texas
A. You may have noticed that nowadays, many "smart" things are connected to the internet, and they’re often controllable by apps on your phone. That’s the Internet of Things (IoT). Your doorbell, for example, might be connected to your home Wi-Fi network, allowing you to monitor and respond to it from anywhere. You may be able to turn lights on and off and adjust your thermostat via the internet, too, thanks to connected devices, and your watch may also be transmitting fitness information wirelessly. Even refrigerators and washing machines are part of the IoT now.
The IoT potentially encompasses just about any object that can be connected to the internet in order to be controlled or to transmit information.
Q. How can I tell if a company pays a dividend? — G.N., Bay City, Michigan
A. The best way is just to call the company, ask for the Investor Relations department, and inquire about dividend payments. It’s even easier to look up the company in online stock listings, which typically include any dividend and, if one is paid, the current dividend yield — but note that these sites may not have the most recent information.
A company’s dividend yield is more informative than its dividend amount, as it allows you to compare different companies’ payouts in an apples-to-apples fashion. The yield is the percentage of the current stock price being paid out annually in dividends. It’s calculated by dividing four quarters’ worth of dividend payments by the current stock price. So a company paying $0.50 quarterly ($2 per year) and trading at $40 per share would have a yield of 5% ($2 divided by $40).
How Do You Invest?
For investors and would-be investors in the stock market, it’s important to understand that there are a variety of ways to go about investing. Here’s a look at some popular approaches. See which ones are best for you.
— Dividend investing: Dividend investors seek income from their holdings, so they tend to look for stocks with generous dividend payouts and/or track records of regular and meaningful dividend increases. This is a powerful strategy, as dividends from healthy and growing companies are likely to increase over time and are paid in good economies and bad.
— Value investing: Value investors aim to buy stocks at prices below their intrinsic value. Buying undervalued stocks builds in a margin of safety and can reduce the odds of being burned by a plunging stock. Great investors such as Warren Buffett have focused on value for decades.
— Growth investing: Growth investors, on the other hand, pay less attention to value and instead seek fast-growing companies. They are more willing to buy seemingly overvalued stocks, hoping that they will keep rising in price.
— Large-cap investing: This style focuses on big companies, which have gotten big by executing strategies well over time. They are more proven and include many blue-chip names.
— Small-cap investing: Small companies can be riskier, but they also can usually grow faster than large ones. They may be fairly new, and possibly not even profitable yet.
— Mutual fund investing: Investors who don’t want to study stocks and make buy and sell decisions on their own can just park their dollars in mutual funds, leaving fund managers to do most of the work. Index funds can be your best bet here, as they have tended to outperform their more actively managed counterparts over long periods.
Note that you needn’t adopt only one of the investing styles above. Many large-cap stocks have solid dividend yields, for example, while some fast-growing companies can also have undervalued stocks. It may also be a good idea to diversify your portfolio with both large and small companies.
My Dumbest Investment
The Merger That Wasn’t
I bought shares of Rite Aid just prior to the announcement that it would merge with Walgreens. One day it was up by 35%, and I just stared at it in wonder. I didn’t sell and didn’t place a stop-loss order to protect the gain. I watched it go way back down to below the announced acquisition price. I figured it would be easy money to buy and hold for a month or two until the acquisition closed, so I added significantly to my position. Well, the acquisition ran into trouble, the price was lowered, and the merger didn’t happen. I ended with a 70%-plus loss on the largest single stock in my portfolio. Lessons learned: 1) Don’t step in front of a steamroller to pick up a dime. 2) If a stock jumps up 40% in one day, don’t think twice: Sell it, take the money and run. — C.D., online
The Fool responds: It’s never worth risking death-by-steamroller for a dime. But do think twice before selling a winning stock, as the best companies (and their stocks) will keep growing over time. The planned merger between Rite Aid (which was struggling) and Walgreens Boots Alliance faced significant criticism, and many expected the Federal Trade Commission to reject it. So the deal was changed, with Walgreens buying roughly half of Rite Aid’s stores for $5.2 billion.
Name That Company
I trace my roots back to 1928, when William Boeing and others founded me as an "Aircraft & Transport" company. I soon started buying other carriers — and in 2010 merged with Continental Airlines. In 2012, I was the first North American airline to fly Boeing’s 787 Dreamliner. For a while, my parent company owned Westin International, Hertz and Hilton International. Today, based in Chicago and with a recent market value topping $15 billion, I’m the third-largest airline in the U.S., with the world’s most comprehensive global route network. I serve more than 350 airports in 48 countries. Who am I?
Last Week’s Trivia Answer
I trace my roots back to 1909, when I began making and selling hair dyes to hairdressers. Today, based near Paris and with a market value recently topping $260 billion, I’m the largest cosmetics company in the world (by revenue), with more than 85,000 employees and annual revenue of about $34 billion. My 35 brands include CeraVe, Dark and Lovely, Diesel, Garnier, Giorgio Armani, Helena Rubinstein, Lancome, Matrix, Maybelline New York, Prada, Ralph Lauren Fragrances, Redken, Urban Decay, Valentino, Yves Saint Laurent — and my own name, of course. My brand ambassadors include Viola Davis and Celine Dion. Who am I? (Answer: L’Oreal)
The Motley Fool Take
Micron Technology (Nasdaq: MU) is one of the leading manufacturers of DRAM (dynamic random access memory) products used in consumer PCs and mobile devices, and its products are increasingly being used in cloud server, industrial and other enterprise markets. DRAM makes up nearly three-quarters of Micron’s total revenue. Micron is also a leading supplier of the NAND flash storage devices used in solid-state drives (SSDs), which make up 24% of its business.
Micron’s business is cyclical, and its prices rise and fall depending on supply and demand. During the company’s fiscal third-quarter earnings call, CEO Sanjay Mehrotra cited "strong demand across almost all end markets," including PC, data center, smartphone and 5G. Mehrotra said that Micron has so much automotive demand it can’t keep up, and also pointed to strong demand in industrial markets.
A semiconductor shortage is causing demand to exceed supply right now, and this could last into calendar year 2022. But even when the supply shortage is eventually resolved, Mehrotra expects demand to increase further.
Micron has been a volatile stock in the past, but its stock has grown by more than 1,000% over the last decade. Given frequent swings in memory pricing, this is one stock you want to get right when you buy shares. With Micron’s forward-looking price-to-earnings (P/E) ratio recently near 7, this seems a promising time for long-term investors to buy.
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