To lots of investors, biotech can seem like a risky bet. But what if the company has strong cash reserves? After all, having cash can fuel innovative R & D, strategic acquisitions, or long term investments, all of which could make a stock a homerun. Today we focused on biotechnology stocks that have strong cash reserves built up, and that analysts have rated positively in recent months. We came up with a pretty interesting list - we hope you like it.
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).
We first looked for mid cap biotechnology stocks. From here, we then looked for companies that have strong liquidity (Current Ratio>2)(Quick Ratio>2). We then screened for businesses that analysts rate as "Buy" or "Strong Buy" (mean recommendation < 3).
Do you think these mid-cap stocks will go up in valuation? Use this list as a starting-off point for your own analysis.
1) Illumina Inc. (ILMN)
| Sector: | Healthcare |
| Industry: | Biotechnology |
| Market Cap: | $4.84B |
| Beta: | 0.57 |
Illumina Inc. has a Current Ratio of 5.59, a Quick Ratio of 5.15, and a Analysts' Rating of 2.40. The short interest was 18.25% as of 06/28/2012. Illumina, Inc. develops, manufactures, and markets life science tools and integrated systems for the analysis of genetic variation and biological function in North America, Europe, Latin America, the Asia-Pacific, the Middle East, and South Africa. Its sequencing platforms include HiSeq 2000, an instrument for high-throughput sequencing using sequencing-by-synthesis (SBS) technology; HiSeq 1000 that accommodates lower throughput needs; MiSeq, a personal sequencing system that offers sequencing applications in a compact and economical instrument for individual researchers; and Genome Analyzer IIx. The company's sequencing/array combination platforms comprise HiScanSQ that combines SBS technology and HiScan microarray analysis instrumentation into one system.
2) VIVUS Inc. (VVUS)
| Sector: | Healthcare |
| Industry: | Biotechnology |
| Market Cap: | $2.84B |
| Beta: | 1.10 |
VIVUS Inc. has a Current Ratio of 25.92, a Quick Ratio of 25.70, and a Analysts' Rating of 2.30. The short interest was 14.95% as of 06/28/2012. VIVUS, Inc., a biopharmaceutical company, is developing therapies to address obesity, sleep apnea, diabetes, and male sexual health. Its lead investigational product, Qnexa, has completed Phase 3 clinical trials for the treatment of obesity. Qnexa is also in Phase 2 clinical development for the treatment of type 2 diabetes and obstructive sleep apnea.
3) Seattle Genetics Inc. (SGEN)
| Sector: | Healthcare |
| Industry: | Biotechnology |
| Market Cap: | $2.97B |
| Beta: | 1.03 |
Seattle Genetics Inc. has a Current Ratio of 5.23, a Quick Ratio of 5.02, and a Analysts' Rating of 2.30. The short interest was 27.75% as of 06/28/2012. Seattle Genetics, Inc., a biotechnology company, focuses on the development and commercialization of monoclonal antibody-based therapies for cancer. Its product candidate, ADCETRISTM, has accelerated approval from the U.S.
4) BioMarin Pharmaceutical Inc. (BMRN)
| Sector: | Healthcare |
| Industry: | Biotechnology |
| Market Cap: | $4.60B |
| Beta: | 1.16 |
BioMarin Pharmaceutical Inc. has a Current Ratio of 4.28, a Quick Ratio of 3.25, and a Analysts' Rating of 1.70. The short interest was 10.60% as of 06/28/2012. BioMarin Pharmaceutical Inc. develops and commercializes biopharmaceuticals for serious diseases and medical conditions in the United States, Europe, Latin America, and rest of the world. The company's commercial products include Naglazyme, a recombinant form of N-acetylgalactosamine 4-sulfatase enzyme used for the treatment of mucopolysaccharidosis (MPS) VI; Kuvan, a proprietary synthetic oral form of 6R-BH4 used to treat patients with phenylketonuria (PKU), a metabolic disease; Aldurazyme used for the treatment of mucopolysaccharidosis I, a genetic disease; and Firdapse used to treat Lambert Eaton Myasthenic Syndrome, an autoimmune disease. It develops GALNS, an enzyme replacement therapy for the treatment of MPS IVA, a lysosomal storage disorder; PEG-PAL, an enzyme substitution therapy that is under Phase II clinical trial to treat PKU; BMN-673, a Phase I/II clinical trial product for the treatment of cancer; BMN-701, an enzyme replacement therapy, which is under Phase I/II clinical trials for Pompe disease, a glycogen storage disorder; and BMN-111, a peptide therapeutic that is under Phase I clinical trial for the treatment of achondroplasia.
*Company profiles were sourced from Finviz. Financial data was sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
