5 High-Growth Healthcare Small Caps Armed With Cash

by: ZetaKap

It's no secret that the healthcare sector is ripe with growth opportunities. But where should you start your search? One smart place to look is at healthcare stocks that have amassed sizeable war chests of cash, and that are slated for growth over the next year. The point is that cash reserves spent wisely could both accelerate and magnify that future growth, which could translate to higher ROI. If stocks of this nature sound interesting, you will probably like the short list we came up with.

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).

EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. The 1-Year Expected EPS Growth Rate is an annual growth estimate, where the growth projections are made by analysts, the company or other credible sources.

We first looked for healthcare stocks. We then screened for businesses that have strong liquidity (Current Ratio>2)(Quick Ratio>2). We then screened for businesses that are considered high-growth, with 1-year projected EPS growth above 25%. We did not screen out any market caps.

Do you think these stocks will go up in valuation? Use our screened list as a starting point for your own analysis.

1) Luminex Corporation (NASDAQ:LMNX)

Sector: Healthcare
Industry: Medical Instruments & Supplies
Market Cap: $1.02B
Beta: 0.62

Luminex Corporation has a Current Ratio of 8.54, a Quick Ratio of 7.18, and a 1-Year Projected Earnings Per Share Growth Rate of 44.44%. The short interest was 12.74% as of 07/01/2012. Luminex Corporation engages in the development, manufacture, and sale of proprietary biological testing technologies and products for the life sciences and diagnostic industries. It offers xMAP technology, an open architecture and multiplexing technology that allows simultaneous analysis of approximately 500 bioassays from a drop of fluid by reading biological tests on the surface of microscopic polystyrene beads called microspheres. The company's xMAP technology is used in various segments of the life sciences industry, such as the fields of drug discovery and development, clinical diagnostics, genetic analysis, bio-defense, food safety, and biomedical research.

2) SurModics Inc. (NASDAQ:SRDX)

Sector: Healthcare
Industry: Diagnostic Substances
Market Cap: $303.44M
Beta: 1.14

SurModics Inc. has a Current Ratio of 14.79, a Quick Ratio of 14.16, and a 1-Year Projected Earnings Per Share Growth Rate of 32.08%. The short interest was 3.13% as of 07/01/2012. SurModics, Inc. provides drug delivery and surface modification technologies to the healthcare industry. The company offers surface modification coating technologies to enhance access, deliverability, and predictable deployment of medical devices, as well as drug delivery coating technologies to provide site-specific drug delivery from the surface of a medical device for the coronary, peripheral, neuro-vascular, and urology markets. It also provides a range of drug delivery technologies for injectable therapeutics, including microparticles, nanoparticles, and implants addressing a range of clinical applications, such as ophthalmology, oncology, dermatology, and neurology.

3) Heartware International Inc. (NASDAQ:HTWR)

Sector: Healthcare
Industry: Medical Instruments & Supplies
Market Cap: $1.26B
Beta: 0.73

Heartware International Inc. has a Current Ratio of 10.18, a Quick Ratio of 8.42, and a 1-Year Projected Earnings Per Share Growth Rate of 65.40%. The short interest was 20.48% as of 07/01/2012. HeartWare International, Inc., a medical device company, develops and manufactures miniaturized implantable heart pumps or ventricular assist devices (VAD) for the treatment of advanced heart failure in the United States and internationally. The company offers HeartWare Ventricular Assist System, which includes a VAD, or blood pump, patient accessories, and surgical tools designed to provide circulatory support for patients in the advanced stage of heart failure. It is also developing the MVAD, a miniaturized blood pump, intended for chronic heart failure patients.

4) Immunogen Inc. (NASDAQ:IMGN)

Sector: Healthcare
Industry: Biotechnology
Market Cap: $1.29B
Beta: 1.71

Immunogen Inc. has a Current Ratio of 12.29, a Quick Ratio of 12.22, and a 1-Year Projected Earnings Per Share Growth Rate of 25.80%. The short interest was 10.24% as of 07/01/2012. ImmunoGen, Inc. engages in the research and development of targeted therapeutics for the treatment of cancer using cancer biology, monoclonal antibodies, and highly potent cell-killing agents. The company develops its products using its Targeted Antibody Payload (NYSE:TAP) technology. Its product candidates include Trastuzumab emtansine (T-DM1), a Phase III clinical trial product for HER2+ breast cancer; lorvotuzumab mertansine (IMGN901), a Phase I clinical trial product, which targets CD56 found on small-cell lung cancer, Merkel cell carcinoma, multiple myeloma, ovarian cancers, carcinoid tumors, and other cancers of neuroendocrine origin; IMGN529, a pre-investigational new drug stage drug for CD37+ B-cell malignancies, such as non-Hodgkin's lymphoma; and IMGN853, a preclinical stage product for cancers that overexpress folate receptor 1, including ovarian cancer.

5) Cumberland Pharmaceuticals, Inc. (NASDAQ:CPIX)

Sector: Healthcare
Industry: Drug Manufacturers - Other
Market Cap: $127.71M
Beta: -

Cumberland Pharmaceuticals, Inc. has a Current Ratio of 14.01, a Quick Ratio of 13.03, and a 1-Year Projected Earnings Per Share Growth Rate of 38.24%. The short interest was 9.31% as of 07/01/2012. Cumberland Pharmaceuticals Inc., a specialty pharmaceutical company, engages in the acquisition, development, and commercialization of branded prescription products for the hospital acute care and gastroenterology markets primarily in the United States. The company's principal products include Acetadote, an intravenous formulation of N-acetylcysteine indicated for the treatment of acetaminophen poisoning; Caldolor, an intravenous formulation of ibuprofen for the treatment of pain and fever; and Kristalose, a prescription laxative administered orally for the treatment of constipation. It is also developing Hepatoren injection, which is in Phase II clinical development for the treatment of hepatorenal syndrome.

*Company profiles were sourced from Finviz. Financial data was sourced from Google Finance and Yahoo Finance.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.