For some people having extra cash on hand brings a certain amount of comfort and security. For others, it seems like the cash is burning a hole in their pocket and they are eager to spend. For companies that have significant cash reserves, it is often regarded as a positive. After all, those cash reserves mean that a company has the funds on hand to make strategic moves like acquisitions, develop new markets, or hold strong during times of uncertainty. Today, we focused on the biotechnology sector to find companies with significant cash reserves. We then reduced the list to only include those that have a recent rating of 'Strong Buy' from industry analysts. We think you will be intrigued by our findings.
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 biotechnology stocks. We then looked for businesses that analysts rate as "Strong Buy" (mean recommendation < 2). We then looked for businesses with a large amount of cash on hand (Current Ratio>2)(Quick Ratio>2). We did not screen out any market caps.
Do you think these stocks have strong operations? Use this list as a starting-off point for your own analysis.
1) BioTime, Inc. (BTX)
BioTime, Inc., a biotechnology company, focuses on regenerative medicine and blood plasma volume expanders. It primarily focuses on regenerative medicine, which refers to therapies based on human embryonic stem cell and induced pluripotent stem cell technology designed to rebuild cell and tissue function lost due to degenerative disease or injury. The company develops and markets research products in the field of stem cells and regenerative medicine.
2) Dyax Corp. (DYAX)
Dyax Corp., a biopharmaceutical company, focuses on identifying, developing, and commercializing treatments for conditions identified as plasma kallikrein (bradykinin) mediated angioedema, including hereditary angioedema, ACE inhibitor-induced angioedema (ACEI-AE), and angioedema. The company develops KALBITOR (ecallantide) by using its phage display technology for the treatment of acute attacks of HAE. It markets KALBITOR through exclusive wholesale and co-exclusive specialty pharmacy arrangements in the United States.
3) Optimer Pharmaceuticals, Inc. (OPTR)
Optimer Pharmaceuticals, Inc., a biopharmaceutical company, focuses on development and commercialization of pharmaceutical products. It offers fidaxomicin tablets, an antibacterial drug for the treatment of adult patients with Clostridium difficile-associated diarrhea. The company sells its fidaxomicin products through wholesalers to hospitals, retail, and specialty pharmacies in the United States.
4) ShangPharma Corporation (SHP)
ShangPharma Corporation, through its subsidiaries, operates as a pharmaceutical and biotechnology research and development outsourcing company. It offers various integrated services across the drug discovery and development process to international and Chinese pharmaceutical and biotechnology companies, and academic and research institutions. The company's services include discovery chemistry, discovery biology and preclinical development, pharmaceutical development, and biologics services.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 08/20/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.