Sometimes we go to a store knowing exactly what we intend to purchase. Other times we are there simply to browse. And most likely, something will be on sale that will capture our intrigue. If the sale is time limited, we may feel an urge to act fast or we may wait to see if the price will drop further. The same is true with investing. It can be a game of wait and see or now is the time to act. With this in mind, we pulled together a list of healthcare stocks that appear to be trading below their true value from a price multiple perspective. In addition, all analysts have recently rated these stocks as 'Buy' or better. We think you will enjoy reviewing the summaries and graphs below to see if these healthcare stocks appeal to you.
The Price/Cash Flow ratio is a price-multiple valuation metric that also measures a firm's future financial health. An advantage of using cash flow is that it removes non-cash factors, which helps provide a clearer picture of how much money the firm is taking in from a valuation standpoint. Price/Cash Flow Ratio = Current Stock Price/Cash Flow Per Share.
The forward P/E is a price multiple valuation metric, which is similar to the current P/E ratio, except that it uses the forecasted earnings instead. While this number might not be as accurate because it uses "forecasted" numbers, it does offer the benefit of illustrating analysts' expectations of a firm. If the market believes that earnings will grow moving forward, then the forward P/E should be lower than the current P/E. Financial Leverage, also known as the Equity Multiplier, illustrates how a firm is financing its assets. The lower the number the more a firm is financing its assets internally through stockholder equity. The higher this metric, the more the firm is relying on debt to finance its assets.
We first looked for healthcare stocks. We then looked for businesses that are trading at low price-multiple valuations (P/CFO<10)(forward P/E<10). We then looked for businesses that analysts rate as "Buy" to "Strong Buy" (1 < mean recommendation < 3). We did not screen out any market caps.
Do you think these stocks are undervalued? Use our screened list as a starting point for your own analysis.
1) UnitedHealth Group, Inc. (UNH)
|Industry||Health Care Plans|
|Price/Cash Flow Ratio||4.88|
|Forward Price/Earnings Ratio||9.80|
UnitedHealth Group Incorporated operates as a diversified health and well-being company in the United States. The company's UnitedHealthcare segment offers consumer-oriented health benefit plans and services to national employers, public sector employers, mid-sized employers, small businesses, and individuals; health and well-being services to individuals aged 50 and older addressing their needs for preventive and acute health care services; health plans and care programs to beneficiaries of acute and long-term care Medicaid plans; and specialty benefits, such as dental, vision, life, and disability products. This segment serves through a network of 754,000 physicians and other health care professionals, and 5,400 hospitals.
Its OptumHealth segment provides personalized health management services, decision support services, access to networks of care provider specialists, well-being solutions, behavioral health management solutions, financial services, and clinical services. This segment serves individuals through programs offered by employers, payers, government entities, and directly with the care delivery system. The company's OptumInsight segment offers software and information products, advisory consulting services, and business process outsourcing services to hospitals, physicians, commercial health plans, government agencies, life sciences companies, and other organizations that comprise the health care system work.
Its OptumRx segment provides a multitude of pharmacy benefit management services, including prescribed medications and patient support. This segment also offers claims processing, retail network contracting, and rebate contracting, as well as management and clinical programs, such as step therapy, formulary management, and disease/drug therapy management programs. The company was founded in 1974 and is based in Minnetonka, Minnesota.
2) Aetna Inc. (AET)
|Industry||Health Care Plans|
|Price/Cash Flow Ratio||14.06|
|Forward Price/Earnings Ratio||6.97|
Aetna Inc. operates as a diversified health care benefits company in the United States. The company operates in three segments: Health Care, Group Insurance, and Large Case Pensions. The Health Care segment provides medical, pharmacy benefit management, dental, behavioral health, and vision plans. This segment also provides Medicare and Medicaid products and services; and specialty products, such as health information exchange technology services, medical management and data analytics services, medical stop loss insurance, and products that offer access in its provider networks select markets. This segment offers its products and services to large multi-site national, mid-sized, and small employers, as well as individual customers.
The Group Insurance segment provides life insurance products that consist of group term life insurance, voluntary spouse and dependent term life insurance, group universal life, and accidental death and dismemberment insurance; disability insurance products; and long-term care insurance products, which offer benefits to cover the cost of care in private home settings, adult day care, assisted living, or nursing facilities. This segment provides insurance products principally to employers that sponsor its products for the benefit of their employees and their employees' dependents.
The Large Case Pensions segment manages various retirement products, including pension and annuity products for tax qualified pension plans. The company's customers include employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers, governmental units, government-sponsored plans, labor groups, and expatriates. Aetna Inc. was founded in 1982 and is headquartered in Hartford, Connecticut.
3) Health Management Associates Inc. (HMA)
|Price/Cash Flow Ratio||12.53|
|Forward Price/Earnings Ratio||8.04|
Health Management Associates, Inc., through its subsidiaries, engages in the operation of general acute care hospitals and other health care facilities in non-urban communities in the United States. Its hospitals provide services, including general surgery, internal medicine, obstetrics, emergency room care, radiology, oncology, diagnostic care, coronary care, and pediatric services.
The company also offers outpatient services, such as one-day surgery, laboratory, x-ray, respiratory therapy, cardiology, and physical therapy. In addition, its hospitals provide specialty services in cardiology, neuro-surgery, oncology, radiation therapy, computer-assisted tomography scanning, magnetic resonance imaging, lithotripsy, and full-service obstetrics. As of December 31, 2011, the company operated 66 hospitals with a total of 10,330 licensed beds in non-urban communities in Alabama, Arkansas, Florida, Georgia, Kentucky, Mississippi, Missouri, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Washington, and West Virginia. Health Management Associates was founded in 1977 and is based in Naples, Florida.
4) Cigna Corp. (CI)
|Industry||Health Care Plans|
|Price/Cash Flow Ratio||4.33|
|Forward Price/Earnings Ratio||7.46|
CIGNA Corporation, a health services organization, through its subsidiaries, provides insurance and related products and services in the United States and internationally. Its Health Care segment offers insured and self-insured medical, dental, behavioral health, vision, and prescription drug benefit plans; health advocacy programs; and other products and services that may be integrated to provide health care benefit programs, as well as operates retail pharmacies.
The company's Disability and Life segment offers various insurance products and related services, including group long-term and short-term disability insurance; group life insurance products comprising group term life and group universal life; and personal accident insurance consisting of accidental death and dismemberment, and travel accident insurance to employers. This segment also provides specialty insurance services that primarily include disability and life, accident, and hospital indemnity products to professional or trade associations, and financial institutions.
Its International segment offers supplemental health, life, and accident insurance products, as well as international health care products and services. The company's Run-off Reinsurance segment manages its run-off reinsurance coverage for risks written by other insurance companies under life and annuity policies and accident policies under guaranteed minimum death benefits and guaranteed minimum income benefits contracts.
Its Other Operations segment provides corporate owned life insurance, which are permanent insurance contracts sold to corporations to offer coverage on the lives of certain employees, as well engages in run-off settlement annuity business. CIGNA Corporation distributes its products and services through independent brokers and agents, consultants, and direct sales personnel, as well as through the Internet. The company was founded in 1792 and is headquartered in Bloomfield, Connecticut.
5) HCA Holdings, Inc. (HCA)
|Price/Cash Flow Ratio||24.25|
|Forward Price/Earnings Ratio||7.58|
HCA Holdings, Inc., through its subsidiaries, provides health care services in the United States. The company owns, manages, or operates hospitals, freestanding surgery centers, diagnostic and imaging centers, radiation and oncology therapy centers, rehabilitation and physical therapy centers, and various other facilities. Its general acute care hospitals provide medical and surgical services, including inpatient care, intensive care, cardiac care, diagnostic services, and emergency services, as well as outpatient services comprising outpatient surgery, laboratory, radiology, respiratory therapy, cardiology, and physical therapy; and psychiatric hospitals offer therapeutic programs, such as child, adolescent, and adult psychiatric care, as well as adult and adolescent alcohol and drug abuse treatment and counseling.
The company's general, acute care hospitals provide a range of services to accommodate such medical specialties as internal medicine, general surgery, cardiology, oncology, neurosurgery, orthopedics, and obstetrics. As of June 30, 2012, it operated 163 hospitals, including 157 general acute care hospitals with 41,817 licensed beds, as well as 110 freestanding surgery centers in 20 states and England. HCA Holdings, Inc. was founded in 1968 and is headquartered in Nashville, Tennessee.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 08/31/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.