Company liquidity is an important consideration in any stock analysis. Liquidity gives a company the ability to make big acquisitions if it sees investment opportunities, a cushion for future lulls in demand, and most importantly, it keeps a company's doors open. For mid cap companies, cash on hand can translate to future growth. Are these the types of stocks that you're looking for? If the answer is 'yes', here are some interesting ideas to get you started.
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 mid cap healthcare stocks. We then screened for businesses that have a substantial amount of cash on hand (Current Ratio>2)(Quick Ratio>2). We then looked for companies with strong profit margins (1-year operating margin>15%)(1-year fiscal EPS growth rate>10%).
Do you think these mid-cap stocks offer both value and growth? Use this list as a starting-off point for your own analysis.
1) Salix Pharmaceuticals Ltd. (SLXP)
|Industry:||Drugs - Generic|
Salix Pharmaceuticals Ltd. has a Current Ratio of 4.75, a Quick Ratio of 4.48, a Operating Profit Margin of 21.89%, and a Earnings Per Share Growth Rate of 405.37%. The short interest was 13.59% as of 06/14/2012. Salix Pharmaceuticals, Ltd. acquires, develops, and markets prescription drugs and medical devices used in the treatment of various gastrointestinal diseases in the United States. The company's marketing products include XIFAXAN tablets for the treatment of patients with travelers' diarrhea, as well as for overt hepatic encephalopathy; MOVIPREP, OSMOPREP, and VISICOL, which are used for cleansing of the colon as a preparation for colonoscopy in adults; RELISTOR for the treatment of opioid-induced constipation (OIC) in patients with advanced illness; APRISO for the maintenance of remission of ulcerative colitis; SOLESTA for the treatment of fecal incontinence; DEFLUX for the treatment of vesicoureteral reflux; and METOZOLV ODT for the treatment of symptomatic documented gastroesophageal reflux disease (GERD) that fails to respond to conventional therapy, as well as relief of symptoms of acute and recurrent diabetic gastroparesis. Its products also comprise AZASAN Azathioprine Tablets, which are used as an adjunct for the prevention of rejection in renal homotransplantations and to reduce signs and symptoms of severe active rheumatoid arthritis; ANUSOL-HC and PROCTOCORT for the relief of the inflammatory and pruritic manifestations of corticosteroid-responsive dermatoses; and PEPCID for the short-term treatment of GERD, active duodenal ulcer, active benign gastric ulcer, erosive esophagitis due to GERD, and peptic ulcer diseases.
2) United Therapeutics Corporation (UTHR)
|Industry:||Drug Manufacturers - Other|
United Therapeutics Corporation has a Current Ratio of 3.27, a Quick Ratio of 3.01, a Operating Profit Margin of 49.40%, and a Earnings Per Share Growth Rate of 95.75%. The short interest was 5.75% as of 06/14/2012. United Therapeutics Corporation, a biotechnology company, engages in the development and commercialization of therapeutic products for patients with chronic and life-threatening diseases in the United States and internationally. It offers Remodulin, Tyvaso, and Adcirca for the treatment of pulmonary arterial hypertension (PAH). The company also develops Oral Treprostinil (UT-15C), a new drug application filed with the United States Food and Drug Administration for the treatment of PAH.
3) ResMed Inc. (RMD)
|Industry:||Medical Appliances & Equipment|
ResMed Inc. has a Current Ratio of 5.15, a Quick Ratio of 4.44, a Operating Profit Margin of 20.27%, and a Earnings Per Share Growth Rate of 17.82%. The short interest was 7.60% as of 06/14/2012. ResMed Inc., through its subsidiaries, engages in the development, manufacture, and distribution of medical equipment for treating, diagnosing, and managing sleep-disordered breathing and other respiratory disorders. It offers various products for the treatment of obstructive sleep apnea and other respiratory disorders, including airflow generators, diagnostic products, mask systems, headgear, ventilation devices, and other accessories, such as cold passover humidifiers, carry bags, and breathing circuits. The company also offers data communications and data control products, such as ResLink, ResControl, ResControl II, TxControl, ResScan, and ResTraxx modules that facilitate the transfer of data and other information to and from the flow generators.
4) Questcor Pharmaceuticals, Inc. (QCOR)
Questcor Pharmaceuticals, Inc. has a Current Ratio of 4.28, a Quick Ratio of 4.20, a Operating Profit Margin of 55.57%, and a Earnings Per Share Growth Rate of 122.58%. The short interest was 25.46% as of 06/14/2012. Questcor Pharmaceuticals, Inc., a biopharmaceutical company, provides prescription drugs for the treatment of multiple sclerosis, nephrotic syndrome, and infantile spasms indications.
5) Jazz Pharmaceuticals plc (JAZZ)
Jazz Pharmaceuticals plc has a Current Ratio of 3.13, a Quick Ratio of 2.97, a Operating Profit Margin of 41.59%, and a Earnings Per Share Growth Rate of 221.11%. The short interest was 5.05% as of 06/14/2012. Jazz Pharmaceuticals Public Limited Company, a specialty biopharmaceutical company, focuses on the identification, development, and commercialization of pharmaceutical products to meet unmet medical needs. Its marketed products include Xyrem, a sodium oxybate oral solution for the treatment of cataplexy and excessive daytime sleepiness in patients with narcolepsy; FazaClo (clozapine, USP) LD and FazaClo HD products, which are orally disintegrating clozapine tablets for the treatment of resistant schizophrenia; Luvox CR extended-release capsules for the treatment of obsessive compulsive disorder; and Prialt, a non-opioid intrathecal analgesic for refractory severe chronic pain. The company also offers women's health and other products, such as Elestrin for moderate-to-severe vasomotor symptoms associated with menopause; Natelle and Gesticare prescription prenatal vitamins; Urelle for irritative voiding, as well as for inflammation, hypermotility, and pain that accompany lower urinary tract infections; Gastrocrom oral concentrate for mastocytosis; Parcopa for idiopathic Parkinson's disease; and AVC (sulfanilamide) cream to treat vulvovaginitis caused by Candida albicans, as well as Niravam for the management of anxiety disorder or the short-term relief of symptoms of anxiety, as well as for panic disorder with or without agoraphobia.
6) Waters Corp. (WAT)
|Industry:||Medical Appliances & Equipment|
Waters Corp. has a Current Ratio of 3.12, a Quick Ratio of 2.76, a Operating Profit Margin of 28.36%, and a Earnings Per Share Growth Rate of 15.54%. The short interest was 2.49% as of 06/14/2012. Waters Corporation, an analytical instrument manufacturer, designs, manufactures, sells, and services high performance liquid chromatography, ultra performance liquid chromatography, and mass spectrometry technology systems and support products primarily in the United States, Europe, Japan, and Asia. Its products are used in various industries to detect, identify, monitor, and measure the chemical, physical, and biological composition of materials, as well as to purify a range of compounds; and in drug discovery and development, including clinical trial testing, the analysis of proteins in disease processes, food safety analysis, and environmental testing. The company also offers thermal analysis, rheometry, and calorimetry instruments that are used in predicting the suitability of fine chemicals, polymers, and viscous liquids for various industrial, consumer goods, and healthcare products, as well as for life science research. In addition, it develops and supplies software-based products that interface with its instruments.
*Company profiles were sourced from Finviz. Financial data was sourced from Finviz and Google Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.