10 Overvalued Healthcare Stocks

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 |  Includes: AUXL, ELN, ESRX, HLS, IDIX, ITMN, NBIX, NVO, PODD, VRTX
by: Follow My Alpha

The Healthcare sector is a world of cheers, fears, and tears. It isn't always for the faint of heart despite its reputation of being a “safe” sector. While some will disagree, we decided to prove this point with some simple facts by highlighting overvalued healthcare firms that have recently taken an extreme tumble over the last few months.

The Price/Book Value Ratio is a simple price-multiple valuation that helps investors determine whether a company is undervalued or overvalued by its assets. For example if a company is trading below 1 it is technically trading below its break-up value, which could indicate some type of significant opportunity or fundamental flaw with the company. The great thing about this metric is that it takes a very objective approach to valuing healthcare companies, which at times are sometimes evaluated based on emotion and subjective opinion rather than hard numbers. After all, everyone one wants to find cures for horrible diseases but not every company is going to be successful in this endeavour.

Today we looked for healthcare stocks that are trading with a high P/BV ratio (X>8). From this narrowed list of candidates we then identified companies that have underperformed the S&P 500 over the last 3 months. We did any not screen out any companies that were above $250M in market capitalization.

The list is ranked from highest to lowest by the P/BV ratio:

1. Healthsouth Corp. (HLS)

Sector

Healthcare

Industry

Medical Care

Market Cap

$1,624M

Beta

1.70

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The company provides rehabilitative health care and ambulatory surgery services. The company has a P/BV ratio of 120.48. HLS has fallen -32.78% in the last three months. The short interest was 9.00% as of 09/30/2011.

2. Idenix Pharmaceuticals, Inc. (IDIX)

Sector

Healthcare

Industry

Biotechnology

Market Cap

$534M

Beta

0.52

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The company develops and commercializes drugs for the treatment of human viral and infectious diseases. The company has a P/BV of 60.61. IDIX has fallen -11.76% in the last three months. The short interest was N/A as of 09/30/2011.

3. Vertex Pharmaceuticals. (VRTX)

Sector

Healthcare

Industry

Biotechnology

Market Cap

$8,686M

Beta

0.86

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The company develops and sells small molecule drugs for serious diseases. The company has a P/BV of 28.25. VRTX has fallen -18.43% in the last three months. The short interest was 5.00% as of 09/30/2011.

4. Elan Corp PLC. (ELN)

Sector

Healthcare

Industry

Biotechnology

Market Cap

$6,504M

Beta

1.22

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The company focuses on developing and selling drugs along with addressing drug optimization challenges in the industry. The company has a P/BV of 22.03. ELN has fallen -11.22% in the last three months. The short interest was N/A as of 09/30/2011.

5. Neurocrine Biosciences, Inc. (NBIX)

Sector

Healthcare

Industry

Biotechnology

Market Cap

$346M

Beta

0.36

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The company is looking to discover, develop, and sell drugs that treat neurological and endocrine-related diseases. The company has a P/BV of 13.53. NBIX has fallen -23.28% in the last three months. The short interest was 5.90% as of 09/30/2011.

6. Express Scripts. (ESRX)

Sector

Healthcare

Industry

Health Care Plans

Market Cap

$19,108M

Beta

1.00

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The company has retail drug card programs, mail pharmacy services, and other prespription related services. The company has a P/BV of 10.45. ESRX has fallen -29.29% in the last three months. The short interest was 13.20% as of 09/30/2011.

7. Auxilium Pharmaceuticals, Inc. (AUXL)

Sector

Healthcare

Industry

Drug Manufacturers - Specialty & Generic

Market Cap

$783M

Beta

0.85

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The company develops and markets products to a variety of physicians. The company has a P/BV of 8.81. AUXL has fallen -18.80% in the last three months. The short interest was N/A as of 09/30/2011.

8. Novo Nordisk A/S. (NVO)

Sector

Healthcare

Industry

Drug Manufacturers - Major

Market Cap

$58,017M

Beta

0.54

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The company develops and sells pharmaceutical products. The company has a P/BV of 8.41. NVO has fallen -19.81% in the last three months. The short interest was N/A as of 09/30/2011.

9. InterMune, Inc. (ITMN)

Sector

Healthcare

Industry

Biotechnology

Market Cap

$1,353M

Beta

2.64

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The company is focused on developing and selling innovative therapies in hepatology & pulmonology. The company has a P/BV of 8.22. ITMN has fallen -38.85% in the last three months. The short interest was N/A as of 09/30/2011.

10. Insulet Corporation. (PODD)

Sector

Healthcare

Industry

Medical Instruments & Supplies

Market Cap

$757M

Beta

1.71

Click to enlarge

The company develops and sells insulin infusion system for diabetes The company has a P/BV of 8.05. PODD has fallen -29.35 % in the last three months. The short interest was N/A as of 09/30/2011.

We hope this list helps as investors do their own due diligence and research on healthcare companies that appear overvalued by their P/BV ratio and that have gained bearish momentum.



Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.