Do you prefer stocks that appear to be trading below their fair value? We ran a screen with this idea in mind.
We began by screening the drugmakers industry for those stocks with current ratios above 3. The current ratio is current assets/current liabilities, so ratios above 3 indicate the company has at least 3 times the liquid assets to cover their short-term liabilities.
We then screened for stocks that may be undervalued, by comparing price trends to changes in EPS estimates over the last month.
Based on the assumption that P/E is equal to a constant k, increases in EPS should be matched by increases in price. When they don't match up, a mispricing may have occurred.
We screened for stocks with faster growth in EPS estimates than price over the last month, which may indicate that these names are being undervalued.
For an interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.
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Tool provided by Kapitall (kapitall.com). More investing ideas on Kapitall Wire (wire.kapitall.com).
Do you think these stocks should be trading higher? Use this list as a starting point for your own analysis.
List sorted by increase in EPS estimate over the last year.
1. Salix Pharmaceuticals Ltd. (SLXP): Develops, and commercializes prescription drugs for the treatment of gastrointestinal disorders in the United States. Market cap at $2.67B, most recent closing price at $45.41. Current ratio at 4.66. The EPS estimate for the company's current year increased from 2.62 to 2.89 over the last 30 days, an increase of 10.31%. This increase came during a time when the stock price changed by -11.99% (from 52.06 to 45.82 over the last 30 days).
2. Cubist Pharmaceuticals Inc. (CBST): Operates as a biopharmaceutical company focused on the research, development, and commercialization of pharmaceutical products that address unmet medical needs in the acute care environment. Market cap at $2.84B, most recent closing price at $44.46. Current ratio at 4.2. The EPS estimate for the company's current year increased from 1.67 to 1.84 over the last 30 days, an increase of 10.18%. This increase came during a time when the stock price changed by 6.37% (from 40.63 to 43.22 over the last 30 days).
3. United Therapeutics Corporation (UTHR): Engages in the development and commercialization of therapeutic products for patients with chronic and life-threatening diseases in the United States and Internationally. Market cap at $2.86B, most recent closing price at $55.37. Current ratio at 3.04. The EPS estimate for the company's current year increased from 4.65 to 5 over the last 30 days, an increase of 7.53%. This increase came during a time when the stock price changed by 5.44% (from 53.32 to 56.22 over the last 30 days).
*EPS data sourced from Yahoo! Finance, all other data sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.