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
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 (
McKesson Corporation (MCK)
Cardinal Health, Inc (CAH)
Eli Lilly and Company (LLY) [more]
Well, this market (and my CAPS) sucks. I am still confindent with my picks. I conducted a thorough review of my portfolio 2 weeks ago and plan to do a quick check up to see if the fundamentals are still in place. This might be one of those times where value simply does not work [more]
No doubt the U.S. is cheap. Some companies I have looked at are trading at historic low P/E levels. Some companies that I have rated here on Fool CAPS are trading near its cash on hand and at one point traded below cash (PCR,KBR). I still do not regret those picks. They still trad eat cheap levels with solid fundamentals. Do not get me wrong, I know they are currently facing macro headwinds, but they are (a) profitable (b) strong balance sheets (c) cheap. I started purchasing PCR at 7 times earnings, it now trades at 4 times earnings. At one point it traded at 3 times earnings. I could continue with other cheap stocks, but what if I showed you a country that Warren Buffett loves and is even CHEAPER than the U.S. have no fear Korea is here. [more]
Fool me once, shame on you! Fool me twice, shame on Me!!! Not happening Mr. Market. I originally looked at Bank of America when all the financials were hitting ridiculous prices. The top 3 banks IMO were ALMOST teenagers for the first time in a long time. USB hit $20. WFC $20. BAC hit $15. I figured USB management would not make any type of acquisitions as their management is very conservative which of course is not a bad thing. This left me with 2 choices WFC and BAC. Honestly, both of these banks are neck and neck. I was leaning towards WFC because of their higher ROE but could not go wrong with either. Well, by the time I did some research to determine the amount of bad debt each bank had (not fun), both stocks have moved up considerably. So, no swings. [more]