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Valeant Pharmaceuticals (VRX) is one of the most heavily searched stocks on the web. The company's recent quarterly results, option volume, and notable acquisitions have attracted considerable attention. Should internet investors fixate on popular stocks like VRX?

As simple as it sounds, you are better off shopping around for better valuations instead of focusing on popular newsmakers. There are many healthcare stocks that offer better growth prospects. Moreover, many of them are trading at lower price multiples.

From a total return perspective that considers capital gains and dividend payments, VRX's earnings and future cash flows will determine its value. The future financial potential of a stock can be gauged by using financial metrics to determine how cheaply a stock is priced, its ability to weather hardship, and its growth potential.

As alternatives to VRX, consider the following stocks with strong track-records and solid credit scores:

Ticker

Company

Industry

10-Year Average ROE

Altman Z-score

AFAM

Almost Family Inc.

Home Health Care

21.3%

5.88

ANGO

AngioDynamics Inc.

Medical Instruments & Supplies

16.1%

6.97

CPIX

Cumberland Pharmaceuticals

Drug Manufacturers - Other

18.5%

9.43

MLAB

Mesa Laboratories Inc.

Medical Instruments & Supplies

17.4%

12.08

UTHR

United Therapeutics Corp.

Drug Manufacturers - Other

3.4%

4.13

VRX

Valeant Pharmaceuticals

Drug Delivery

N/A

1.26

Unlike VRX, these alternative stocks are all categorized as "safe" according to the Altman Z-score,* which indicates that they are not considered bankruptcy risks. Moreover, the average 10-year return on equity demonstrates that these five stocks have grown shareholder wealth at a respectable annual rate. It is clear from these two metrics that each of these five alternative stocks is a "high" quality stock capable of weathering bad times and delivering positive long-term results.

What's more, these healthcare stocks are cheaper and have higher growth prospects:

Ticker

P/E

P/S

P/FCF

Sales growth past 5 years

AFAM

11.3

0.69

10.24

30.4%

ANGO

48.38

1.41

12.98

22.4%

CPIX

28.59

3.02

18.64

23.5%

MLAB

21.82

4.43

19.44

23.2%

UTHR

13.41

3.45

11.98

36.0%

VRX

109.47

6.49

25.87

18.2%

Admittedly, finding valuations below a 100 PE ratio is easy as pie. In reality, the value of these alternatives is that their metrics beat VRX in all of the following: growth, value, and safety. Based on lower price-to-earnings ratios, price-to-sales ratios, and price-to-free cash flow ratios, these stocks are cheaper than VRX at current market prices. Better yet, they have better growth prospects based on sales growth trends and healthcare sector tailwinds.

Rather than restrict yourself to concentrated investments in one popular stock like VRX, consider a diversified mix of these five securities as a more attractive alternative.

*Please read the article disclaimer.

Source: 5 Picks To Beat Valeant Pharmaceuticals