Continuous research and development keep a healthcare company on a leading edge. Unfortunately, innovation is rarely an inexpensive affair. Knowing that these expenses are part of the equation for being in the healthcare industry, we looked today for companies that have indicators that point to long term sustainability. To find stocks of this nature, we focused on two traits: minimal debt and liquidity. The healthcare stocks that appear below have maintained a sound capital infrastructure by keeping debt low and having cash on hand. If healthcare stocks with these characteristics appeal to you, then you will enjoy reviewing our list below.
The Long Term Debt/Equity Ratio is a variation of the traditional debt-to-equity ratio; this value computes the proportion of a company's long-term debt compared to its available capital. By using this ratio, investors can identify the amount of leverage utilized by a specific company and compare it to others to help analyze the company's risk exposure. Generally, companies that finance a greater portion of their capital via debt are considered riskier than those with lower leverage ratios.
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 healthcare stocks. We then looked for companies that operate with little to no long term debt (Long Term D/E Ratio<.1). From here, we then looked for companies 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 enough fundamentals to move higher? Use this list as a starting-off point for your own analysis.
1) Nanosphere, Inc. (NASDAQ:NSPH)
|Industry||Medical Instruments & Supplies|
|Long Term Debt/Equity Ratio||0.02|
Nanosphere, Inc. develops, manufactures, and markets a molecular diagnostics platform -- the Verigene System -- that enables genomic and protein testing on a single platform. Its Verigene System includes a bench-top molecular diagnostics workstation with nanoparticle technology that provides the ability to run multiple tests simultaneously on the same sample. The Verigene System is used for testing infectious disease assays, human and pharmacogenetic assays, and ultra-sensitive protein assays. The company serves hospital-based laboratories and academic research institutions in the United States. Nanosphere, Inc. was founded in 1998 and is headquartered in Northbrook, Illinois.
2) Natus Medical Inc. (NASDAQ:BABY)
|Industry||Medical Appliances & Equipment|
|Long Term Debt/Equity Ratio||0.07|
Natus Medical Incorporated provides neurodiagnostic and newborn care products worldwide. The company offers healthcare products used for the screening, detection, treatment, monitoring, and tracking of common medical ailments in newborn care, hearing impairment, neurological dysfunction, epilepsy, sleep disorders, and balance and mobility disorders. The company serves hospitals, clinics, laboratories, physicians, nurses, audiologists, and governmental agencies. Natus Medical Incorporated was founded in 1987 and is headquartered in San Carlos, California.
3) Hill-Rom Holdings, Inc. (NYSE:HRC)
|Industry||Medical Instruments & Supplies|
|Long Term Debt/Equity Ratio||0.06|
Hill-Rom Holdings, Inc. manufactures and provides medical technologies and related services for the health care industry in North America and internationally. It offers patient support system, safe mobility and handling solutions, medical equipment rental services, and information technology solutions, as well as non-invasive therapeutic products for acute and chronic medical conditions. The company was formerly known as Hillenbrand Industries, Inc. and changed its name to Hill-Rom Holdings, Inc. in March 2008. Hill-Rom Holdings, Inc. was founded in 1969 and is headquartered in Batesville, Indiana.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 09/22/2012.