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Teach Your Kids to Have Money to Squander, Too

The opinions expressed by columnists are their own and do not necessarily represent the views of

My youngest daughter gave me $70 recently to put into her savings account.  She doesn't receive money from relatives; all her money comes from doing chores.  And as I held the three twenties and one ten, I decided to talk about paychecks.

Flashing the $70, I said, "Honey, this is your monthly paycheck.  Here's how most adults handle the money."  

I threw a twenty down.  "This is your mortgage payment."  

I threw another twenty down. "This is your car payment."  

I threw another twenty down.  "This is your credit card payment."  

I snapped the ten dollar bill in my hands and said, "This is the money that's left over to live on."  Then I repeated the process for emphasis.

Next, I said, "Here's the same paycheck for a person who's not living in debt."  (Yes, such people exist, and they have a lot less stress than most people.)  

I threw a twenty down.  "Here are your living expenses for things like food, utilities and gasoline."  

I threw another twenty down.  "This is your fun money for going to the movies and eating at Maggiano's and shopping at Macy*s."  

I threw the next twenty down.  "This is your savings account.  You can save for retirement or a new car or a nice house or college for your children."  

Then I threw down the ten dollar bill.  "This is your charitable giving.  You can give it to anybody you like.  You can buy animals for families in Africa through World Vision, or give it to your church, or help a nearby family pay their electric bill."  (She bought clothing for children in Africa at Christmas time, so she can visualize this.)

We listen to Dave Ramsey on the radio together. Ramsey helps people become debt-free.  I wanted to show her how much less stressful and more enjoyable life is when you're debt-free.  It's painful for a debt-ridden adult to do a 180 degree turn and work towards living debt-free, but it's easy for a ten-year-old who hasn't yet accumulated debt to form a plan for how she's going to live her life.  She got the picture, and enjoyed imagining how she would spend or save all the cash that didn't need to service debt.

Any person or entity without debt is more capable of weathering life's trials than a person or organization that's spending every spare penny just to get by.  That's why we look at a company's "fundamentals" before we invest in a stock.  We want to invest in companies which are not only thriving today, but have planned for difficult times by minimizing risks in other ways, including saving cash to ease the stress of daily business operations.

Celgene Corp. (CELG, $74.41) for example is a debt-free biopharmaceutical company which creates and markets therapies to treat cancers, immune and inflammatory diseases.  Revenues come from products such as Revlimid, Vidaza,  Abraxane and Istodax.  Celgene also has a licensing agreement with Novartis, earning it royalties on Focalin XR and Ritalin.

Revenue growth is coming from Revlimid, a myeloma cancer treatment, via increasing global sales, new uses (possible treatment for leukemia and lymphoma) and global expansion. There are pending initial and additional approvals of the drug in Europe, China and Brazil, and increasing usage in France and Russia. Celgene has other drugs being developed and tested, including treatments for arthritis and psoriasis, several of which are expected to be approved in 2013-2014.  Earnings growth is coming from increasing operating margins, improving manufacturing efficiencies, and a more profitable product mix.

Celgene had a 2011 year-end cash balance of $2.65 billion, which will most likely fuel R&D investment, acquisitions, and share repurchases.

S&P gives Celgene a Qualitative Risk Assessment of "High".  "Our risk assessment reflects the strong competition we see in the blood cancer treatment market, particularly from Velcade in multiple myeloma.  We see inherent risk in CELG's drugs maintaining a favorable safety profile, as evidenced by recent share volatility over a link to higher incidence of secondary cancers seen in some Revlimid studies.  CELG is reliant on Revlimid for a majority of its revenues."

Revenues rose each year in the last decade, from $136 million to $4.8 billion.  The company also achieved record earnings in 2011.  Wall Street projects earnings per share (EPS) to grow 27%, 17%, and 21% in fiscal years 2012 through 2014.  With EPS expected to come in at $4.83 this year, that gives Celgene a 2012 price earnings ratio (PE) of 15.4.  For perspective, the stock carried a PE ranging from 17 to 35 over the last three years.

Morgan Stanley Research gives CELG stock an Overweight Rating and an $85 price target.  Standard & Poor's Research gives CELG a 5-Star Strong Buy rating, with a 12-month target price of $93.

Celgene is the most attractive growth stock in the pharmaceutical industry that I've found so far.

CELG rose dramatically in the last decade to about $77 in 2008, fell to $38 during the Financial Meltdown, and is just now finishing its climb back to former highs.  I expect the stock to trade $71 - $77 in the near term, and then continue rising based on strong earnings growth and low PE.  The chart looks strong enough to pause briefly in the $70's, on its way to reaching new highs.

Celgene could best appeal to aggressive growth investors with a strong emphasis on value.  Since the stock could be reaching new highs on its next upswing, I wouldn't arbitrarily sell at any particular price target.  Instead, I would protect my downside with a stop-loss order, and let this stock climb as high as it's willing to go.

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