Biotechnology is a cutting edge sector for investors. Some may consider it to be a risky frontier and prefer to stay clear. However, for those that are curious and willing to do additional research, we have selected companies that have the necessary cash to fuel future growth. Additionally, these stocks have been positively rated by analysts using the standard metrics that illuminate those that have real potential to produce high earnings.
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 the company 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 it is to meet current obligations using liquid assets).
We first looked for biotechnology stocks. Next, we screened for businesses that have a substantial amount of cash on hand (Current Ratio >2)(Quick Ratio >2). We then looked for businesses that analysts rate as "Buy" (2 < mean recommendation < 3). We did not screen out any market caps.
Do you think these stocks will perform well? Use our list to help with your own analysis.
1) GTx, Inc. (NASDAQ:GTXI)
GTx, Inc. has a Current Ratio of 11.86, a Quick Ratio of 11.84, and Analysts' Rating of 2.20. The short interest was 14.70% as of 07/25/2012. GTx, Inc., a biopharmaceutical company, engages in the discovery, development, and commercialization of small molecules for the treatment of cancer, cancer supportive care, and other serious medical conditions. The company markets FARESTON (toremifene citrate) 60 mg tablets for the treatment of metastatic breast cancer in postmenopausal women primarily through wholesale drug distributors in the United States. It is also developing Enobosarm, an anabolic agent, which is in Phase 3 clinical trials for the prevention and treatment of muscle wasting in patients with non-small cell lung cancer.
2) InterMune, Inc. (NASDAQ:ITMN)
InterMune, Inc. has a Current Ratio of 10.71, a Quick Ratio of 10.48, and Analysts' Rating of 1.90. The short interest was 21.82% as of 07/25/2012. InterMune, Inc., a biotechnology company, engages in the research, development, and commercialization of therapies in pulmonology and orphan fibrotic diseases. The company focuses on therapies for the treatment of idiopathic pulmonary fibrosis (IPF), a progressive and fatal lung disease. It markets Pirfenidone, an orally active small molecule drug for the treatment of adults with mild-to-moderate IPF under the Esbriet name in the European Union.
3) Illumina, Inc. (NASDAQ:ILMN)
Illumina, Inc. has a Current Ratio of 5.59, a Quick Ratio of 5.15, and Analysts' Rating of 2.40. The short interest was 16.77% as of 07/25/2012. 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.
4) QLT Inc. (NASDAQ:QLTI)
QLT Inc. has a Current Ratio of 21.52, a Quick Ratio of 21.21, and Analysts' Rating of 2.50. The short interest was 1.87% as of 07/25/2012. QLT Inc., a biotechnology company, engages in the development and commercialization of ocular products that address the unmet medical needs of patients and clinicians. It offers Visudyne that utilizes light-activated photodynamic therapy to treat the eye disease known as wet age related macular degeneration. Visudyne is also used for the treatment of subfoveal choroidal neovascularization secondary to pathologic myopia, severe near-sightedness, and presumed ocular histoplasmosis.
5) Seattle Genetics, Inc. (NASDAQ:SGEN)
Seattle Genetics, Inc. has a Current Ratio of 5.23, a Quick Ratio of 5.02, and Analysts' Rating of 2.30. The short interest was 25.55% as of 07/25/2012. Seattle Genetics, Inc., a biotechnology company, focuses on the development and commercialization of monoclonal antibody-based therapies for cancer.
6) Vivus, Inc. (NASDAQ:VVUS)
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 13.97% as of 07/25/2012. 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.
*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.