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The healthcare sector has been the top performing group during the last six months, with a 10.9% gain during that period.

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Based on this observation I screened for companies in the healthcare sector where at least one insider made a buy transaction during the October month. I wrote part I of an article titled "5 Healthcare Companies With Insider Buying During October 2012" on October 15. Here is a look at five additional stocks that I found.

1. DaVita (NYSE:DVA) is a leading provider of kidney care in the United States, delivering dialysis services to patients with chronic kidney failure and end stage renal disease. DaVita strives to improve patients' quality of life by innovating clinical care, and by offering integrated treatment plans, personalized care teams and convenient health-management services. As of June 30, 2012, DaVita operated or provided administrative services at 1,884 outpatient dialysis centers located in the United States serving approximately 149,000 patients. The company also operated 19 outpatient dialysis centers located in four countries outside the United States. DaVita supports numerous programs dedicated to creating positive, sustainable change in communities around the world. The company's leadership development initiatives and social responsibility efforts have been recognized by Fortune, Modern Healthcare, Newsweek and WorldBlu [From DaVita's website].

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Insider buys

Berkshire Hathaway purchased 63,928 shares on October 16-17, 217,597 shares on October 10-12, 67,946 shares on October 9, and 282,403 shares on September 26-28. Berkshire Hathaway currently holds 10,547,040 shares of DaVita. DaVita has 94.6 million shares outstanding, which makes Berkshire Hathaway a 11.1% owner of DaVita.

Financials

The company reported the second-quarter financial results on August 1, with the following highlights:

Revenue$1.9 billion
Net income$95.3 million
Cash$273.4 million

Outlook

The company's operating income guidance for 2012 is in the range of $1,275 million to $1,325 million. The company expects its operating cash flows for 2012 to be in the range of $950 million to $1,050 million.

Competition

DaVita's main competitor is Fresenius Medical Care (NYSE:FMS). Here is a table comparing these two companies:

CompanyDVAFMS
Market cap$10.5B$23.7B
Revenue$7.4B$13.2B
Net income$0.5B$1.3B
P/E20.218.7
Forward P/E16.118.5

My analysis

The stock has a $141 price target from the Point and Figure chart. Berkshire Hathaway has been the only insider buying the shares this year. There have been 19 insider sell transactions since April 2012. The stock is trading at a P/E ratio of 20.20 and a forward P/E ratio of 16.07. The valuation is in line with its main competitor Fresenius Medical Care. I am cautiously bullish on the stock currently.

2. CytRx Corporation (NASDAQ:CYTR) is a biopharmaceutical research and development company specializing in oncology. The CytRx oncology pipeline includes two programs in clinical development for cancer indications: aldoxorubicin (formerly known as INNO-206) and tamibarotene.

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With its tumor-targeted doxorubicin conjugate aldoxorubicin, CytRx has initiated an international Phase 2b clinical trial as a treatment for soft tissue sarcomas, has completed its Phase 1b/2 clinical trial primarily in the same indication, recently initiated both a Phase 2 trial for patients with advanced pancreatic ductal adenocarcinomas and a Phase 1b study of aldoxorubicin in combination with doxorubicin in patients with advanced solid tumors, and plans to meet with the FDA in the fourth quarter of 2012 to discuss a potential Phase 3 pivotal trial as a therapy for patients with soft tissue sarcomas whose tumors have progressed following treatment with chemotherapy. Tamibarotene is being tested in a double-blind, placebo-controlled, international Phase 2b clinical trial in patients with non-small-cell lung cancer, and is in a Phase 2 clinical trial as a treatment for acute promyelocytic leukemia [APL]. The company completed its evaluation of a third drug candidate, bafetinib, in the ENABLE Phase 2 clinical trial in high-risk B-cell chronic lymphocytic leukemia [B-CLL], and plans to seek a partner for further development of bafetinib [From CytRx's website].

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Insider buys

  • Scott Patterson purchased 1,200,000 shares on October 18, pursuant to a public offering. Scott Patterson has purchased 2,015,165 shares since May 31, and currently holds 4,298,662 shares of the company.
  • Max Link purchased 205,329 shares on February 22-23. Dr. Link has been a director of the company since 1996.
  • John Caloz purchased 31,792 shares on February 22-23. John Caloz serves as Chief Financial Officer of the company.
  • Marvin Selter purchased 100,000 shares on February 22. Marvin Selter has been a director of the company since October 2003.
  • Richard Wennekamp purchased 111,965 shares on February 22-23. Mr. Wennekamp has been a director of the company since October 2003.
  • Daniel Levitt purchased 100,000 shares on February 22. Dr. Levitt is Chief Medical Officer of the company.
  • Ben Levin purchased 33,578 shares on February 22-23. Ben Levin is General Counsel, Vice President of Legal Affairs and Corporate Secretary.
  • Steven Kriegsman purchased 158,676 shares on February 22-23. Mr. Kriegsman has been CytRx Corporation's President and Chief Executive Officer and a director since July 2002.

Financials

The company reported the second-quarter financial results on August 9, with the following highlights:

Revenue$0
Net loss$13.3 million
Cash$26.9 million

The company's current cash burn rate is about $1.6 million per month according to the company presentation dated September 11. The company received $23 million in gross proceeds from the public offering closed on October 19.

Upcoming milestones

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The company is going to present data from four different clinical trials in 2013.

My analysis

The stock tanked after the public offering announcement on October 18. There have been 16 insider buy transactions and there have not been any insider sell transactions this year. The company does not have any approved products yet but is going to present data from four different clinical trials in 2013. The company just closed a public offering and should have enough cash to last for at least 2 years. The stock could be a good pick after this offering dip.

3. Hansen Medical (NASDAQ:HNSN), based in Mountain View, California, is the global leader in intravascular robotics, developing products and technology designed to enable the accurate positioning, manipulation and control of catheters and catheter-based technologies. The company's Magellan Robotic System, NorthStar Robotic Catheter and related accessories, which are intended to facilitate navigation to anatomical targets in the peripheral vasculature and subsequently provide a conduit for manual placement of therapeutic devices, have undergone both CE marking and 510[k] clearance and are commercially available in the European Union and the U.S. In the European Union, the company's Sensei X Robotic Catheter System and Artisan Control Catheter are cleared for use during electrophysiology [EP] procedures, such as guiding catheters in the treatment of atrial fibrillation [AF], and the Lynx Robotic Ablation Catheter is cleared for the treatment of AF. This robotic catheter system is compatible with fluoroscopy, ultrasound, 3D surface map and patient electrocardiogram data. In the U.S. the company's Sensei X Robotic Catheter System and Artisan Control Catheter were cleared by the U.S. Food and Drug Administration for manipulation and control of certain mapping catheters in EP procedures. In the United States, the Sensei System is not approved for use in guiding ablation procedures; this use remains experimental. The U.S. product labeling therefore provides that the safety and effectiveness of the Sensei X System and Artisan Control Catheter for use with cardiac ablation catheters in the treatment of cardiac arrhythmias, including AF, have not been established [From Hansen Medical's website].

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Insider buys

Larry Feinberg purchased 155,155 shares on October 16-17. Larry Feinberg controls more than 10% of the company.

Financials

The company reported the second-quarter financial results on August 8, with the following highlights:

Revenue$3.5 million
Net loss$11.5 million
Cash$29.4 million

Outlook

Bruce Barclay, Hansen Medical's President and Chief Executive Officer, commented on August 8:

In June, we achieved one of the most significant milestones in the Company's history with the receipt of 510(k) clearance and subsequent initial U.S. launch of the Magellan Robotic System. While we are still in the very early days of the launch, we are pleased with the clinical interest for the Magellan System. We currently have several quotes outstanding to potential customers and expect to ship multiple Magellan Systems this year. With growing clinical experience and our strengthened commercial capabilities across key geographies, we believe we are well positioned for long-term commercial success.

Competition

I chose three other medical robotic companies Mako Surgical (NASDAQ:MAKO), Intuitive Surgical (NASDAQ:ISRG) and Stereotaxis (NASDAQ:STXS). Here is a table comparing these companies:

CompanyHNSNMAKOISRGSTXS
P/S5.546.6810.880.22
P/E--38.32-

Only Intuitive Surgical is profitable out of these four companies. Stereotaxis has the lowest P/S multiple out of these four companies.

My analysis

The stock is currently trading close to its 52 -week lows. There has been one insider buy transaction and there have been 10 insider sell transactions this year. I have a neutral bias for the stock.

4. AdCare Health Systems (NYSEMKT:ADK) is a recognized innovator in senior living and healthcare facility management. AdCare owns and manages long-term care facilities and retirement communities, and since the company's inception in 1988, its mission has been to provide the highest quality of healthcare services to the elderly, including a broad range of skilled nursing and sub-acute care services [From company's website].

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Insider buys

Connie Brogdon purchased 2,000 shares on October 16, and currently holds 888,699 shares of the company. Connie Brogdon has purchased 33,442 shares this year.

Financials

The company reported the second-quarter financial results on August 7, with the following highlights:

Revenue$55.0 million
Net income$0.7 million
Cash$13.0 million

Outlook

Combining the company's current annualized run-rate with transactions in the process of closing, AdCare's estimated annualized revenue run-rate is expected to exceed $250 million. This would represent an increase of more than 65% over the company's revenues in 2011, and an increase of more than nine times revenue since initiating its M&A campaign. AdCare's expected annualized revenue run-rate does not include the potential revenue of the $20 million from the newly renovated sub-acute care facility in Arkansas.

Valuation

AdCare is currently valued in line of the average sector wide EV/S multiple but is growing faster than the sector in average.

My analysis

The stock has a $10.75 price target from the Point and Figure chart. There have been 10 insider buy transactions and there have not been any insider sell transactions this year. The stock is currently trading at a P/E ratio of 42.00 and a forward P/E ratio of 9.83. The company has a book value of $1.49 per share. The 200-day moving average is currently at $4, which could be a good entry point for the stock.

5. Digirad (NASDAQ:DRAD) is a leading provider of diagnostic imaging products. Digirad also provides the ability for its physician customers to lease its qualified personnel, imaging systems and related items required to perform nuclear imaging in their own offices [From Digirad's website].

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Insider buys

Jeffrey Eberwein purchased 2,280 shares on October 16-17, 2,000 shares on October 12-15, 3,460 shares on October 10-11, 9,013 shares on October 5-9, 10,000 shares on October 3-4 and 10,000 shares on October 1-2, pursuant to a Rule 10b5-1 trading plan entered into by the reporting person on August 6, 2012. Jeffrey Eberwein currently holds 289,738 shares of the company. Jeffrey Eberwein serves as a director of the company.

Financials

The company reported the second-quarter financial results on July 26, with the following highlights:

Revenue$12.7 million
Net loss$0.9 million
Cash$28.5 million
Debt$0
Shares outstanding20.1 million
Net cash per share$1.42

Outlook

Digirad CEO Todd Clyde commented on July 26:

To reiterate our goals for 2012, we expect to generate positive cash flow from our DIS business and are focused on increasing sales of both our cardiac and ergo cameras. Management and the Board's newly formed Strategic Advisory Committee continue to explore various strategic options, including examining where our core solid state camera technologies can be applied with greater success in the marketplace.

Competition

The medical device industry, including the market for nuclear and ultrasound imaging systems and services, is highly competitive. Digirad's business in the private practice and hospital sectors continues to face the challenge of a decline in demand for nuclear imaging equipment and services, which Digirad believes reflects in part, the impact of the Deficit Reduction Act on the reimbursement environment and the 2010 Healthcare Reform laws, decline in the overall economy and competition from competing imaging modalities, such as CT (computed tomography) angiography, PET (positron emission tomography), and hybrid technologies. Digirad believes that the principal competitive factors in its market include acceptance by physicians, budget availability, qualification for reimbursement, pricing, ease-of-use, reliability and mobility.

My analysis

There have been 28 insider buy transactions and five insider sell transactions this year. The company has a book value of $2.04 per share and a net cash position of $1.42 per share. The stock is currently trading right at its 200-day moving average, which could be a good entry point for the stock.

Source: 5 Healthcare Companies With Insider Buying During October 2012 - Part II