To capitalize on a true bargain, you need to know what something is worth. That takes research, analysis and understanding the market. In that vein, we have a list of healthcare stocks that all appear to be trading below their market value from a price multiple perspective. The idea is that these stocks are worth more, but there is a temporary blip that is keeping the price low. In time, the price is expected to rise and investors who purchase the stock now will reap gains. In addition, these healthcare stocks have received recent analyst ratings of 'Buy' or better. Take the summaries below as a place to begin your assessment.
The Price/Book Value Ratio is a great price-multiple valuation metric to find companies that could be potentially undervalued or overvalued. If a firm has a Price/Book Value Ratio of less than 1 it is stated to be trading below "break up" value. A lower P/BV Ratio can indicate a potentially mispriced company or indicate that something is fundamentally wrong with it.
The Price/Sales ratio is a price-multiple valuation metric used to help identify if a firm is cheap by its twelve month trailing sales numbers. In the most basic terms it lets an investor know how much the investment community is willing to pay for every dollar's worth of sales. A firm with a P/S ratio of one or lower would be viewed as cheap because investors are paying $1 or less for every dollar's worth of a firm's sales. On the other hand, a firm is generally considered to be expensive when the P/S ratio is above three. These are general guidelines used by the investment community, not hard rules, to be clear. Price/Sales Ratio = Current Stock Price/Revenue (sales) per Share.
We first looked for healthcare stocks. We next screened for businesses that analysts rate as "Buy" or "Strong Buy" (mean recommendation < 3). We next screened for businesses that are undervalued from a price-multiple valuation standpoint (P/BV<1)(P/S<1). We did not screen out any market caps.
Do you think these stocks will go up in valuation? Please use our list to assist with your own analysis.
1) Albany Molecular Research Inc. (AMRI)
|Price/Book Value Ratio||0.47|
Albany Molecular Research, Inc. provides contract services to various pharmaceutical and biotechnology companies primarily in the United States, Europe, and Asia. The company offers a range of drug discovery services, including assay development and design, screening, screening library, natural product, medicinal chemistry, computer-aided drug discovery, in vitro ADMET, and bioanalytical services. It also provides chemical development services consisting of process research and development, custom synthesis, process safety assessment, scale-up capabilities, high potency and controlled substances, analytical services, preformulation services and physical characterization, preparative chromatography, IND support services, fermentation development and optimization, and building blocks collection and database services. In addition, the company offers chemical synthesis and manufacturing services. It manufactures active pharmaceutical ingredients (APIs)and advanced intermediates. Further, the company provides contract manufacturing services in sterile syringe and vial filling for small molecule drug products and biologicals. Additionally, it offers formulation services, including neat API or pharmaceutical blend in capsules; PIB for solution and suspension; blending and sieving; milling; tableting; rheology; roller compaction; wet granulation; and fluid bed processing, including wurster coating; and associated analytical testing services for dosage formulation products, as well as provides analytical services, such as impurity identification and structure elucidation; method development, qualification, and validation; preformulation and physical characterization; quality control; stability services; analytical and preparative supercritical fluid chromatography; preparative chromatography; good laboratory practices bioanalytical services; and regulatory support/quality assurance services. The company was founded in 1991 and is based in Albany, New York.
2) Community Health Systems, Inc. (CYH)
|Price/Book Value Ratio||0.93|
Community Health Systems, Inc., together with its subsidiaries, provides general and specialized hospital healthcare services to patients in the United States. The company's general care hospitals offer a range of inpatient and outpatient medical and surgical services, such as general acute care, emergency room, general and specialty surgery, critical care, internal medicine, obstetrics, diagnostic, psychiatric, and rehabilitation services; and skilled nursing and home care services based on individual community needs. It also provides outpatient services at urgent care centers, occupational medicine clinics, imaging centers, cancer centers, ambulatory surgery centers, and home health and hospice agencies. In addition, the company offers management and consulting services to non-affiliated general acute care hospitals. As of December 31, 2011, it owned or leased 131 hospitals, including 4 stand-alone rehabilitation or psychiatric hospitals with an aggregate of 19,695 licensed beds in 29 states. The company also owns and operates approximately 63 licensed home care agencies and 30 licensed hospice agencies. Community Health Systems, Inc. was founded in 1985 and is headquartered in Franklin, Tennessee.
3) Alere Inc. (ALR)
|Industry||Medical Laboratories & Research|
|Price/Book Value Ratio||0.96|
Alere Inc. develops and manufactures patient diagnosis, monitoring, and health management products and services for cardiology, infectious diseases, toxicology, diabetes, oncology, and women's health in the United States and internationally. The company's Professional Diagnostics segment provides an array of diagnostic test and other in vitro diagnostic test products to medical professionals and laboratories for detection of diseases and conditions. This segment also sells blood analysis system for blood gas and electrolyte testing; and disposable and lateral flow rapid diagnostic tests. Its Health Management segment provides integrated programs and services focused on wellness, disease and condition management, productivity enhancement, and informatics. This segment's health management programs comprise disease and case management, patient self-testing, women's and children's health, and oncology programs, as well a wellness and technology solutions. The company's Consumer Diagnostics segment offers over-the-counter pregnancy and fertility/ovulation test products; over-the-counter drug tests for at-home-testing; over-the-counter tests for cholesterol monitoring and colon cancer screening; and vaginal gel for the treatment of bacterial vaginosis without antibiotics. Alere Inc. markets its professional diagnostic products to hospitals, reference laboratories, physician offices, and other point-of-care settings through its sales forces and distribution networks; health management programs primarily to commercial and governmental health plans, self-insured employers, pharmaceutical companies, and physicians through sales force and channel partners; and consumer drug testing products through retail drug stores, drug wholesalers, groceries, and mass merchandisers. The company was formerly known as Inverness Medical Innovations, Inc. and changed its name to Alere Inc. in July 2010. Alere Inc. was founded in 2001 and is headquartered in Waltham, Massachusetts.
4) Alphatec Holdings, Inc. (ATEC)
|Industry||Medical Instruments & Supplies|
|Price/Book Value Ratio||0.63|
Alphatec Holdings, Inc., a medical technology company, designs, develops, manufactures, and markets products for the surgical treatment of spine disorders, primarily focusing on the aging spine in the United States and internationally. The company's product portfolio and pipeline addresses the cervical, thoracolumbar, and intervertebral regions of the spine; and spinal disorders and procedures, such as vertebral compression fractures, bone disorders, spinal stenosis, and minimally invasive access techniques. Its products include Trestle Luxe Anterior Cervical Plate system to have graft site and end plate visualization; Solanas Posterior Cervico/Thoracic Fixation system for posterior cervico/thoracic fusion procedures and occipito-cervico-thoracic fixation; Zodiac Degenerative fixation system offering polyaxial pedicle screws, connectors, and advanced instruments; Zodiac Smart Set Deformity fixation system to address spinal deformity procedures; and Aspida Anterior Lumbar Interbody Fusion Plate system to provide the option of performing a single anterior procedure. The company also provides Novel PEEK spinal spacers for lumbar and cervical regions of the spine; Alphatec Solus locking spinal spacer for stability; Illico Minimally Invasive Surgery system, a cannulated pedicle screw and rod system; and Guided Lumbar Interbody Fusion technique and ARC Portal Access System to perform a minimally invasive procedure from multiple surgical planes. In addition, it offers aging spine products, such as OsseoFix spinal fracture reduction, OsseoFix+ Vertebroplasty, OsseoScrew spinal fixation, and HeliFix Interspinous spacer systems; and biologics, including Alphagraft structural allograft spacers, Alphagraft Demineralized bone matrix, PureGen Osteoprogenitor cell allograft, Alphagraft ProFuse Demineralized bone scaffolds, Amnioshield Amniotic Membrane, and AlphaGUARD Anterior vessel guards. The company was incorporated in 2005 and is headquartered in Carlsbad, California.
5) WellPoint Inc. (WLP)
|Industry||Health Care Plans|
|Price/Book Value Ratio||0.80|
WellPoint, Inc., through its subsidiaries, operates as a health benefits company in the United States. The company offers various network-based managed care plans to large and small employer, individual, Medicaid, and senior markets. Its managed care plans include preferred provider organizations; health maintenance organizations; point-of-service plans; traditional indemnity plans; and other hybrid plans, including consumer-driven health plans, hospital only, and limited benefit products. The company also provides various managed care services comprising claims processing, underwriting, stop loss insurance, actuarial services, provider network access, medical cost management, disease management, wellness programs, and other administrative services to self-funded customers. In addition, it offers specialty and other products and services, including life and disability insurance benefits; dental, vision, and behavioral health benefit services; radiology benefit management; personal health care guidance; and long-term care insurance. Further, the company serves as an intermediary providing administrative service for the Medicare program that offers coverage for persons, who are 65 or older and for persons who are disabled or with end-stage renal disease. WellPoint, Inc. markets its products through a network of independent agents and brokers, consultants, in-house sales force, or Internet. The company, formerly known as Anthem, Inc., was founded in 1944 and is headquartered in Indianapolis, Indiana.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 08/28/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.