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There is a lot more to profitability than whether a company’s bottom line is increasing. Profits can come from several sources, with some better than others. To get a deeper look into a company’s profit trends, we performed DuPont analysis on stocks in the healthcare sector.

DuPont analyzes return on equity (ROE, or net income/equity) profitability by breaking ROE up into three components:

ROE

= (Net Profit/Equity)

= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)

= (Net Profit margin)*(Asset turnover)*(Leverage ratio)

We therefore focus on companies with the following positive characteristics: Increasing ROE along with,

• Decreasing leverage, i.e. decreasing Asset/Equity ratio

• Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)

Companies with all of these characteristics are experiencing increasing profits due to operations and not to increased use of financial leverage.

‪Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.‬

We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.

Do you think these companies have strong profitability? Use this list as a starting point for your own analysis.

List sorted by increase in ROE.

1. Merck & Co. Inc. (MRK): Provides various health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer care products. Market cap of $107.93B. MRQ Net Profit Margin increased to 14.07% from 3.07% year-over-year, Sales/Assets increased to 0.11 from 0.10, while Assets/Equity decreased to 1.93 from 1.94. The stock has gained 1.52% over the last year.

2. Pfizer Inc. (PFE): A biopharmaceutical company, offers prescription medicines for humans and animals worldwide. Market cap of $156.74B. MRQ Net Profit Margin increased to 21.74% from 5.41% year-over-year, Sales/Assets increased to 0.09 from 0.08, while Assets/Equity decreased to 2.1781 from 2.1842. Offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 3.92%, current ratio at 2.25, and quick ratio at 1.95. The stock has gained 23.58% over the last year.

3. Given Imaging Ltd. (GIVN): Engages in the development, manufacture, and marketing of diagnostic products for the visualization and detection of gastrointestinal tract disorders. Market cap of $503.17M. MRQ Net Profit Margin increased to 8.41% from 2.61% year-over-year, Sales/Assets increased to 0.19 from 0.18, while Assets/Equity decreased to 1.24 from 1.27. The stock has gained 13.37% over the last year.

4. Select Medical Holdings Corporation (SEM): Operates specialty hospitals and outpatient rehabilitation clinics in the United States. Market cap of $1.26B. MRQ Net Profit Margin increased to 3.69% from 1.36% year-over-year, Sales/Assets increased to 0.25 from 0.22, while Assets/Equity decreased to 3.33 from 3.38. The stock has gained 30.41% over the last year.

5. Neurocrine Biosciences Inc. (NBIX): Engages in the discovery, development, and commercialization of drugs for the treatment of neurological and endocrine-related diseases and disorders in the United States. Market cap of $413.34M. MRQ Net Profit Margin increased to 75.38% from 23.04% year-over-year, Sales/Assets increased to 0.28 from 0.10, while Assets/Equity decreased to 2.58 from 9.00. The stock has had a couple of great days, gaining 6.86% over the last week.

6. PerkinElmer Inc. (PKI): Provides technology, services, and solutions to the diagnostics, research, environmental and safety, and industrial and laboratory services markets worldwide. Market cap of $2.09B. MRQ Net Profit Margin increased to 7.78% from 3.19% year-over-year, Sales/Assets increased to 0.1334 from 0.1290, while Assets/Equity decreased to 1.75 from 1.90. The stock has lost 26.72% over the last year.

7. Anika Therapeutics Inc. (ANIK): Develops, manufactures, and commercializes therapeutic products for tissue protection, healing, and repair. Market cap of $119.04M. MRQ Net Profit Margin increased to 16.14% from 8.51% year-over-year, Sales/Assets increased to 0.14 from 0.11, while Assets/Equity decreased to 1.40 from 1.54. The stock has gained 43.28% over the last year.

8. AstraZeneca PLC (AZN): Develops, and commercializes prescription medicines for cardiovascular, gastrointestinal, infection, neuroscience, oncology, and respiratory and inflammation diseases worldwide. Market cap of $59.21B. MRQ Net Profit Margin increased to 42.34% from 19.60% year-over-year, Sales/Assets increased to 0.16 from 0.14, while Assets/Equity decreased to 2.20 from 2.55. The stock has lost 1.15% over the last year.

9. Synergetics USA, Inc. (SURG): Engages in the design, manufacture, and marketing of microsurgical instruments and consumables primarily for ophthalmology and neurosurgery markets in the United States and internationally. Market cap of $159.12M. MRQ Net Profit Margin increased to 12.91% from 7.66% year-over-year, Sales/Assets increased to 0.19 from 0.18, while Assets/Equity decreased to 1.61 from 1.65. The stock has gained 41.87% over the last year.

10. Teleflex Incorporated (TFX): Develops, manufactures, and supplies single-use medical devices used by hospitals and healthcare providers worldwide. Market cap of $2.41B. MRQ Net Profit Margin increased to 11.74% from 6.43% year-over-year, Sales/Assets increased to 0.10 from 0.09, while Assets/Equity decreased to 2.00 from 2.22. The stock has gained 13.65% over the last year.

11. CareFusion Corporation (CFN): Provides various healthcare products and services in the United States and internationally. Market cap of $5.49B. MRQ Net Profit Margin increased to 7.94% from 4.69% year-over-year, Sales/Assets increased to 0.10213 from 0.10205, while Assets/Equity decreased to 1.61 from 1.66. The stock has gained 1.12% over the last year.

12. Cumberland Pharmaceuticals, Inc. (CPIX): Engages in the acquisition, development, and commercialization of branded prescription products for the hospital acute care and gastroenterology markets. Market cap of $119.06M. MRQ Net Profit Margin increased to 14.18% from 8.29% year-over-year, Sales/Assets increased to 0.1358 from 0.1356, while Assets/Equity decreased to 1.15 from 1.20. The stock is a short squeeze candidate, with a short float at 11.36% (equivalent to 50.01 days of average volume). The stock has lost 19.62% over the last year.

13. Shire plc (SHPGY): Engages in the research and development, manufacture, sale, and distribution of pharmaceutical products. Market cap of $18.56B. MRQ Net Profit Margin increased to 17.76% from 11.01% year-over-year, Sales/Assets increased to 0.18 from 0.17, while Assets/Equity decreased to 2.05 from 2.22. The stock has gained 40.59% over the last year.

14. ZOLL Medical Corp. (ZOLL): Develops, manufactures, and markets resuscitation devices and related software solutions worldwide. Market cap of $1.06B. MRQ Net Profit Margin increased to 7.82% from 6.00% year-over-year, Sales/Assets increased to 0.32 from 0.28, while Assets/Equity decreased to 1.31 from 1.37. The stock has had a good month, gaining 37.47%.

15. Theragenics Corp. (TGX): Operates as a medical device company serving the cancer treatment and surgical products markets primarily in the United States and Europe. Market cap of $55.40M. MRQ Net Profit Margin increased to 5.41% from 3.77% year-over-year, Sales/Assets increased to 0.18 from 0.17, while Assets/Equity decreased to 1.40 from 1.47. The stock has gained 13.99% over the last year.

16. Questcor Pharmaceuticals, Inc. (QCOR): Provides prescription drugs for central nervous system and inflammatory disorders. Market cap of $2.76B. MRQ Net Profit Margin increased to 38.20% from 36.84% year-over-year, Sales/Assets increased to 0.27 from 0.21, while Assets/Equity decreased to 1.27 from 1.32. The stock has gained 192.56% over the last year.

17. Meridian Bioscience Inc. (VIVO): Develops, sells, and distributes diagnostic test kits. Market cap of $785.21M. MRQ Net Profit Margin increased to 16.23% from 14.97% year-over-year, Sales/Assets increased to 0.27 from 0.23, while Assets/Equity decreased to 1.12 from 1.13. The stock is a short squeeze candidate, with a short float at 11.73% (equivalent to 16.1 days of average volume). The stock has lost 15.79% over the last year.

18. Integramed America Inc. (INMD): A specialty healthcare services company, manages outpatient centers offering products and services to patients and providers in the fertility and vein care segments of the health industry in the United States. Market cap of $91.05M. MRQ Net Profit Margin increased to 2.07% from 1.82% year-over-year, Sales/Assets increased to 0.44 from 0.41, while Assets/Equity decreased to 1.81 from 1.82. The stock has lost 12.11% over the last year.

19. Intuitive Surgical, Inc. (ISRG): Designs, manufactures, and markets da Vinci surgical systems for various surgical procedures, including urologic, gynecologic, cardiothoracic, general, and head and neck surgeries. Market cap of $16.91B. MRQ Net Profit Margin increased to 27.40% from 25.15% year-over-year, Sales/Assets increased to 0.16 from 0.15, while Assets/Equity decreased to 1.16 from 1.17. The stock has gained 70.28% over the last year.

20. Mesa Laboratories Inc. (MLAB): Designs, manufactures, and markets instruments and disposable products utilized primarily in healthcare, pharmaceutical, food and beverage, medical device, and petrochemical industries. Market cap of $131.46M. MRQ Net Profit Margin increased to 22.07% from 18.45% year-over-year, Sales/Assets increased to 0.1839 from 0.1796, while Assets/Equity decreased to 1.26 from 1.29. The stock has gained 54.69% over the last year.

*Accounting data sourced from Google Finance, all other data sourced from Finviz.

Source: 20 Healthcare Stocks With Strong Sources Of Profitability