MOTLEY FOOL ASK THE FOOL
Initiating coverage
Q. What does it mean when a company “initiates coverage” on a stock? – R.I., Redmond, Washington A. Financial companies such as banks and brokerages often have analysts who research companies and report on their potential as investments. When a bank or brokerage initiates coverage of a company, that means at least one of its analysts has begun to follow the stock and will report on it regularly – often labeling it with a rating, such as “buy,” “hold” or “sell.” (It's typically rare to see a “sell” rating: The analyst's employer may not want to insult a company with which it might do business, now or in the future.)
Many brokerages offer gobs of research reports on companies, which can be far more informative than a single one-word rating. Look into what research your brokerage offers, or read up on better brokerages at Theascent.com. To see many stocks Motley Fool analysts have recommended, try our Stock Advisor service at Fool.com/services. Q. What’s a mutual fund’s “NAV”? – T.Y., online
A. NAV stands for net asset value: the fund's per-share value. As funds generally hold many different securities (plus cash and cash equivalents), the total value of a fund's holdings is tallied at the end of each trading day, and any receivables or accrued income are added. Then the mutual fund's expenses for the day, such as trading commissions and operating costs, are subtracted. The result is divided by the fund's number of shares; that gives you the net asset value of the fund.
Note that the NAV doesn't account for money distributed to shareholders, such as dividends. When evaluating a fund's performance, focus on its total return over time, not its changing NAV.
FOOL’S SCHOOL
Homebuying mistakes to avoid
Buying a new home is exciting. Avoid making these mistakes, though, to save yourself a lot of headaches and dollars:
h Buying more home than you can really afford. Determine how much money you spend on food, clothing, transportation, entertainment, insurance, taxes, retirement savings and more to see how much is available for housing. Estimate conservatively, as your income might shrink – or your expenses might grow – over time. Don't let a lender or real estate agent lead you to buy a more costly home than you should.
h Not checking your credit score and full credit report. Lenders base the interest rates they offer you on your credit score, so it's worth getting it as high as possible. (Paying bills on time and paying down debt are great ways to boost your score.) Many credit card companies give you access to your score, and you can check your credit reports – which influence that score – at no cost once a year. Visit Annualcreditreport.com to learn more.
h Not shopping around for a mortgage. Gather quotes from a variety of sources, such as local and national banks, credit unions and perhaps a mortgage broker or two. Even before that, read up on mortgages to learn what kind of loan will serve you best: 30-year versus 15-year, fixed-rate versus adjustable, and so on.
h Not getting preapproved. Sellers will take you more seriously if you've been preapproved for a loan by a lender. Being a more credible buyer might help if you end up in a bidding war.
h Not using professional help. Find a good real estate agent to work with – one who's experienced, knows your area and can guide you through the process. If you stumble on a great home on your own, remember that the agent you'll encounter there is the sellers' agent, who serves their interests first. A buyer's agent can protect yours.
Search online for more homebuying tips, and you could save even more money.
MY DUMBEST INVESTMENT Too many options
My dumbest investment has been using options. – E.F., online
The Fool responds: Options are best avoided by beginning and unsophisticated investors. There's a range of ways to invest with options, and some of them can be quite risky. The most basic forms of options are “calls” and “puts.” A call for a particular stock gives you the right to buy shares of it at a specified price (the “strike price”), while a put gives you the right to sell shares at a specified price. Neither is an obligation.
Call and put options come with a defined shelf life; once they expire, they're worthless. That's one knock against them: While you can hang on to shares of stock for years, waiting for them to perform as expected, an option that expires in a few months can only serve you in that period. As an example, imagine that you buy a call option with a strike price of $55 on Typewriterland (ticker: QWERTY), which is currently trading at $50 per share. If the shares zoom to, say, $65 before the options expire, you can exercise them, buying those $65 shares for just $55. (Hopefully, that's enough to recoup the money you spent buying the option.)
There's much more to know about options before you even consider using them, so do your due diligence. And know that you can build great wealth without using options at all.
FOOLISH TRIVIA Name that company
I trace my roots back to 1927, when a talent agent created a radio broadcasting system for his clients to perform on. I soon merged with Columbia Phonograph and Records, and later entered television. (Westinghouse Electric bought me in 1995.) My current name reflects a big media merger that closed in December 2019, reuniting two businesses that used to be under one roof. I'm part of the National Amusements holding company. My portfolio boasts Showtime Networks, Paramount Pictures, Nickelodeon, MTV, Comedy Central, BET, Pluto TV and Simon & Schuster. I reach more than 4.3 billion subscribers globally. Who am I?
Last week’s trivia answer
I trace my roots back to 1843 and 1910, when the founders of two companies got their starts – respectively setting up a hardware factory in New Britain, Connecticut, and a machine shop in Baltimore. Those companies would eventually merge in 2010. Today, with a market value recently near $27 billion, I employ more than 60,000 people in the world's largest tools and storage business. I'm also involved in electronic security services, infrastructure, oil and gas – and even health care. My brands include Bostitch, Craftsman, Dewalt, Irwin, Lenox, Mac Tools and Porter Cable. I've paid dividends for 144 consecutive years. Who am I? (Answer: Stanley Black & Decker)
THE MOTLEY FOOL TAKE Viva, Veeva!
Meet Veeva Systems (NYSE: VEEV), a pricey stock worth considering. It provides dedicated cloud services to biotech and pharmaceutical companies, helping them maintain customer relationships, keep track of clinical trials and regulations, and store and analyze their data.
The majority of its income comes from subscriptions to its Veeva Commercial Cloud and Veeva Vault services. That's an attractive business model, because subscriptions mean reliable, predictable revenue. Veeva's “sticky” environment is another plus, as it can seem like more trouble for customers to leave and set up with a different provider than to just remain with Veeva.
Escalating competition between top drugmakers has boosted demand for Veeva's services in recent years. The company has expanded its digital health care ecosystem by acquiring Crossix Solutions, a leader in patient data privacy and analytics, and Physicians World, a provider of speakers bureau services.
With a forward-looking price-toearnings (P/E) ratio recently north of 90, Veeva's stock isn't cheap. But Veeva is growing briskly, with revenue and earnings both increasing by more than 30% year-over-year in fiscal 2021's second quarter. Veeva is expected to grow by more than 15% annually over the coming five years.
Consider investing in Veeva if you can be patient – or, to play it safer, add it to a watch list. Then you can buy it later, if the price drops. (The Motley Fool owns shares of and has recommended Veeva Systems.)