An upside of inflation
Q: I know inflation makes money worth less over time. Is there any upside to that?
S.L., Kankakee, Ill. A: Here’s one: Imagine that you’re earning $80,000 per year and making monthly $1,800 payments on your fixed-rate mortgage. Over time, your income will presumably grow along with inflation, and that $1,800 will represent a smaller and smaller portion of your income.
Q: I bought a stock. It tripled, then fell in price so that I only doubled my money. Should I have sold after it tripled and bought it again after it dropped? Or is it best to just wait and hold, hoping for more gains?
M.M., Ocala, Fla.
A: Selling at a top and then buying again at a bottom sounds great, but there’s one little problem: You can’t know when a stock has reached a top or a bottom. Indeed, you can’t even know if it’s going to rise or fall from day to day.
Focusing on your gain (or loss) so far when thinking about whether to sell or hang on means you’re looking backward. Instead, look forward: Consider the stock’s current price and what you expect the price to be in the future. Ideally, you’ll buy stocks when they seem undervalued — priced less than what you think they should be worth — and you might sell when they seem overvalued. Or, if you’re planning to hang on for many years, if not decades, hold on through thick and thin as long as the company is performing well and maintaining great potential.
When a company is healthy and growing, its intrinsic value will increase over time. Looking at measures such as price-toearnings (P/E) ratios can give you a rough idea of valuation.
FOOLISH TRIVIA
Name that company
I was born in 1913 as America’s first commercial liquid bleach maker, the Electro-Alkaline Company. My sales totaled $7,996 in my first year. I introduced household bleach to farmers and others at the 1917 California State Fair, and made it through the Great Depression with solid sales and no layoffs. My bleach was rationed during World War II because it could disinfect wounds, neutralize gas attacks and purify water. Today, with a recent market value of over $19 billion, I’m home to brands such as Brita, Burt’s Bees, Fresh Step, Glad, Hidden Valley, Kingsford, Liquid-Plumr and Pine-Sol. Who am I?
Last answer: Rocket Companies
THE MOTLEY FOOL TAKE CVS is healthy
Serving over 100 million people in the United States annually through its Caremark prescription management business and Aetna health insurance business, CVS Health (NYSE: CVS) is a major health solutions company. These businesses support the company’s near-$90 billion market value, making it the third-largest health care plan provider in the country. Its network features more than 40,000 physicians, pharmacists, nurses and nurse practitioners.
As the U.S. population continues to age, demand for Caremark and Aetna’s services should increase. Meanwhile, CVS has been expanding further via more acquisitions, including its $10.6 billion purchase of primary care operator Oak Street Health and an $8 billion deal for home-health company Signify Health.
That’s a lot to digest, so CVS has said it will pause mergers and acquisitions as it works on integration for the time being.
Meanwhile, its dividend recently yielded 3.5 percent and remains sustainable; the company was recently paying out about 75 percent of its income in dividends.
CVS Health was already a top name in pharmacy retail, and now has health insurance and pharmacy benefits businesses; together, those areas should provide long-term stability for investors. CVS Health’s forward price-to-earnings (P/E) ratio of 8 is far lower than the health care plan industry’s average of 13. (The Motley Fool has recommended CVS Health.)