Profitable healthcare companies are nice investments, but what's even better is when those companies can also build up solid cash reserves along the way. Having plenty of cash on hand is crucial for healthcare companies to continually innovate through R & D, and possibly make huge breakthroughs. Today we focused on large cap healthcare companies that not only bring in profits, but also have plenty of cash. We think you'll find this list rather interesting.
The Current ratio is a liquidity ratio used to determine a company's financial health. The metric illustrates how easily a firm can pay back its short obligations all at once through current assets. A company that has a current ratio of one or less is generally a liquidity red flag. Now this doesn't mean the company will go bankrupt tomorrow, but it also doesn't bode well for the company, and may indicate that it could have an issue paying back upcoming obligations.
The Quick ratio measures a company's ability to use its cash or assets to extinguish its current liabilities immediately. Quick assets include assets that presumably can be converted to cash at close to their book values. A company with a Quick Ratio of less than 1 cannot currently pay back its current liabilities. The quick ratio is more conservative than the Current Ratio because it excludes inventory from current assets, since some companies have difficulty turning their inventory into cash. If short-term obligations need to be paid off immediately, sometimes the current ratio would overestimate a company's short-term financial strength. In general, the higher the ratio, the greater the company's liquidity (i.e., the better able to meet current obligations using liquid assets).
The Operating Profit Margin is a profitability ratio that measures the effectiveness of the company's operating efficiency. This metric allows investors to see how much profit is left after all variable costs are covered. If the company's margin is increasing over time this means that it's earning more per dollar of sales. Finding trends in the Operating Profit Margin helps investors identify companies that are improving profitability over time and managing the economic landscape better than competitors.
EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. EPS growth rates help investors identify stocks that are increasing or decreasing in profitability. This profitability metric is generally a key driver in the price of the stock as it directly correlates to the profitability of the company as a whole.
We first looked for large cap healthcare stocks. We then looked for companies that have strong liquidity (Current Ratio>2)(Quick Ratio>2). We then screened for businesses with strong profit margins (1-year operating margin>15%)(1-year fiscal EPS growth rate>10%).
Do you think these large-cap stocks hold value that has yet to be priced in? Use this list as a starting-off point for your own analysis.
1) Celgene Corporation (CELG)
Celgene Corporation has a Current Ratio of 3.71 and Quick Ratio of 3.51 and Operating Profit Margin of 32.81% and Earnings Per Share Growth Rate of 51.89%. The short interest was 1.39% as of 06/01/2012. Celgene Corporation, a biopharmaceutical company, discovers, develops, and commercializes various therapies to treat cancer and immune-inflammatory related diseases primarily in the United States and Europe. The company's commercial stage products include REVLIMID, an oral immunomodulatory drug for the treatment of patients with multiple myeloma and myelodysplastic syndromes (MDS); VIDAZA, a pyrimidine nucleoside analog to treat various subtypes MDS and acute myeloid leukemia; and THALOMID for patients with multiple myeloma, and for the prevention and suppression of the cutaneous manifestation of erythema nodosum leprosum recurrence. It also offers ABRAXANE to treat metastatic breast cancer; and ISTODAX for the treatment of cutaneous and peripheral T-cell lymphoma.
2) Alexion Pharmaceuticals, Inc. (ALXN)
Alexion Pharmaceuticals, Inc. has a Current Ratio of 2.30 and Quick Ratio of 2.03 and Operating Profit Margin of 30.23% and Earnings Per Share Growth Rate of 75.18%. The short interest was 2.01% as of 06/01/2012. Alexion Pharmaceuticals, Inc., a biopharmaceutical company, engages in the innovation, development, and commercialization of life-transforming therapeutic products for treating patients with severe and ultra-rare disorders in the United States, Europe, Latin America, Japan, and the Asia Pacific. It focuses on developing products for the treatment of diseases in the areas of hematology, nephrology, neurology, metabolic disorders, oncology, and ophthalmology. The company offers Soliris(eculizumab), a therapeutic product for the treatment of patients with paroxysmal nocturnal hemoglobinuria (PNH), a blood disorder; and atypical hemolytic uremic syndrome (aHUS), an ultra-rare and life-threatening genetic disease.
3) Vertex Pharmaceuticals Incorporated (VRTX)
Vertex Pharmaceuticals Incorporated has a Current Ratio of 4.02 and Quick Ratio of 3.66 and Operating Profit Margin of 20.58% and Earnings Per Share Growth Rate of 103.73%. The short interest was 3.50% as of 06/01/2012. Vertex Pharmaceuticals Incorporated engages in discovering, developing, manufacturing, and commercializing small molecule drugs for the treatment of serious diseases worldwide. Its products include telaprevir, a prescription medicine used for the treatment of patients with genotype 1 hepatitis C virus (HCV) infection; and Ivacaftor, a prescription medicine used for the treatment of cystic fibrosis. The company markets its products under the INCIVEK brand name in the United States and Canada; INCIVO brand in the United Kingdom, Germany, France, Sweden, Austria, Finland, Denmark, Switzerland, and Norway; KALYDECO brand in the United States; and TELAVIC brand in Japan.
4) Allergan Inc. (AGN)
|Industry:||Drug Manufacturers - Other|
Allergan Inc. has a Current Ratio of 4.38 and Quick Ratio of 4.10 and Operating Profit Margin of 26.57% and Earnings Per Share Growth Rate of 154390.80%. The short interest was 1.28% as of 06/01/2012. Allergan, Inc. operates as a multi-specialty healthcare company primarily in the United States, Europe, Latin America, and the Asia Pacific. The company discovers, develops, and commercializes specialty pharmaceutical, biologics, medical device, and over-the-counter products for the ophthalmic, neurological, medical aesthetics, medical dermatological, breast aesthetics, obesity intervention, urological, and other specialty markets worldwide. It operates in two segments, Specialty Pharmaceuticals and Medical Devices.
5) Becton, Dickinson and Company (BDX)
|Industry:||Medical Instruments & Supplies|
Becton, Dickinson and Company has a Current Ratio of 3.27 and Quick Ratio of 2.45 and Operating Profit Margin of 21.09% and Earnings Per Share Growth Rate of 14.11%. The short interest was 3.93% as of 06/01/2012. Becton, Dickinson and Company, a medical technology company, develops, manufactures, and sells medical devices, instrument systems, and reagents worldwide. The company's BD Medical segment produces medical devices that are used in various healthcare settings. This segment's products include needles, syringes, and intravenous catheters for medication delivery; prefilled IV flush syringes; syringes, pen needles, and other drugs to treat diabetes; prefillable drug delivery systems; anesthesia needles and trays; sharps disposal containers; and closed-system transfer devices.
6) Intuitive Surgical, Inc. (ISRG)
|Industry:||Medical Appliances & Equipment|
Intuitive Surgical, Inc. has a Current Ratio of 4.58 and Quick Ratio of 4.20 and Operating Profit Margin of 39.68% and Earnings Per Share Growth Rate of 30.00%. The short interest was 2.49% as of 06/01/2012. Intuitive Surgical, Inc. designs, manufactures, and markets da Vinci surgical systems for various surgical procedures, including urologic, gynecologic, cardiothoracic, general, and head and neck surgeries. Its da Vinci surgical system consists of a surgeon's console or consoles, a patient-side cart, a 3-D vision system, Firefly fluorescence imaging product, da Vinci skills simulator, and proprietary wristed' instruments. The company's da Vinci surgical system translates the surgeon's natural hand movements on instrument controls at the console into corresponding micro-movements of instruments positioned inside the patient through small puncture incisions, or ports.
7) Zimmer Holdings, Inc. (ZMH)
|Industry:||Medical Appliances & Equipment|
Zimmer Holdings, Inc. has a Current Ratio of 3.86 and Quick Ratio of 2.77 and Operating Profit Margin of 22.84% and Earnings Per Share Growth Rate of 35.83%. The short interest was 3.00% as of 06/01/2012. Zimmer Holdings, Inc., through its subsidiaries, engages in the design, development, manufacture, and marketing of orthopedic reconstructive devices, spinal and trauma devices, dental implants, and related surgical products in the Americas, Europe, and the Asia Pacific. The company offers orthopedic reconstructive devices that restore function lost due to disease or trauma in joints such as knees, hips, shoulders, and elbows; dental reconstructive implants, which restore function and aesthetics in patients who have lost teeth due to trauma or disease; spinal devices that are utilized by orthopedic surgeons and neurosurgeons in the treatment of degenerative diseases, deformities, and trauma in various regions of the spine; and trauma devices used primarily to reattach or stabilize damaged bone and tissue to support the body's natural healing process. It also provides surgical products comprising surgical supplies and instruments designed to aid in orthopedic surgical procedures and post-operation rehabilitation.
*Company profiles were sourced from Finviz. Financial data was sourced from Finviz and Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.