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7 Magic Formula Health-care Stocks

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September 30, 2009 – Comments (0) | RELATED TICKERS: AMED , FRX.DL , CYTK

Throughout the years, certain trends develop within the Magic Formula Investing system that one takes notice of. For example, when earnings season arrives, there are more stocks moving in and out of the magic formula screen. Another trend that arises is the number of magic formula stocks that appear when a whole sector is under pressure, in this case the health-care sector.

It's important to first understand why these stocks are under pressure. Unless you have been living in a cave in recent months, there are several initiatives to get a government sponsored health care plan under way which could potentially change the way the sector conducts business. Profitability would decrease, a new competitor would be in town (the government), etc.. There are simply too much uncertainty surrounding the sector. And one thing that Wall Street does not like is uncertainty. So in return, we have opportunity.

Magic Formula Screen Used


Market Capitalization: 50 Million

Ranks: Top 30

Date: 9/27/09

Magic Formula Health-care Stocks


Amedisys, Inc. (AMED)- Home health-care. A multir-egional provider of home health care nursing services recently saw its stock tank in early September as it saw 2 executives leave the company simultaneously. Shortly after, the company reaffirmed 2009 guidance of EPS coming in between $4.75 -$4.90. Amedysis has historically traded at a high teens multiple.

3 Magic Formula Bio-techs


If there's one thing you can bet on, the Magic Formula is never short on bio-techs. Magic formula stocks come and go, but bio-techs are always hold their own. I have always considered bio-techs a lottery ticket and have never paid too much attention to them. Thus, the commentary on them is close to zilch.

Questcor Pharmaceuticals (QCOR)- No comment.

Cytokinetics (CYTK)- Biotech. Cytokinetics only interests me due to the huge run it has had in the past 3 months. It's stock is up about 80% on results from a Phase II clinical trial. Move on.

Matrixx Initiatives, Inc. (MTXX)- Stock dropped from $19 ----> $5, will. It's a 55 million dollar market cap with $22 million in cash.  The stock tanked after the FDA ruled its core product causes more harm than it does good.  It doesn't seem as if the company has anything in the works, move on.

3 Magic Formula Drug Manufacturers


Drug manufacturers generally have a more established portfolio of drugs and is currently developing or looking to acquire drugs from smaller firms such as biotechs. I depend heavily on Morningstar and ValueLine for doing research on these types of companies. The one thing I focus on exclusively is the pipeline and where is it headed. I'm not necessarily looking for a top of the line pipeline as I would have to pay a premium for it, but situations arise where management is taking the proper steps in terms of acquisitions, drug developments, partnerships,etc.. to offset upcoming expiration s on blockbuster drugs. Pfizer (PFE), a magic formula stock, is the perfect example, but you'' have to do your own research.

Endo Pharmaceuticals Holdings Inc. (ENDP)- Drug manufacturer. The company focuses exclusively on Pain and has several leading drugs in the area that allows it to control costs and cross sell its products. Most of its patents expire in 2012-2015 but I haven't come across anything (maybe because I haven't done anymore research) that demonstrates the company has a plan for the upcoming expiration's.

Forest Laboratories (FRX)- Drug Manufacturer. Baby Pfizer as I like to call it. Where Pfizer might lose 50% of revenues when Lipitor expires, Forest is looking at an 80% haircut due to Lexapro expiring in 2012. The company is currently a cash cow. Forest is producing about $290 million dollars in free cash flow/ quarter and has $9/share in cash. I wasn't too fond of the company until it was brought to my attention on the Gurufocus forum. Shortly after, I started digging into the company and I started to get an idea of where management is headed.

Pain Therapeutics, Inc (PTIE)- Drug manufacturer. No comment as I have yet to dig deeper.

Other Magic Formula Health-care Stocks


These stocks appear on other magic formula screens and might merit further research.

AmerisourceBergen Corporation (ABC)

IMS Health's (RX)

McKesson Corporation (MCK)

Cardinal Health, Inc (CAH)

Eli Lilly and Company (LLY)

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