Samuel Isaly (Trades, Portfolio), manager of the Eaton Vance Worldwide Health Care Fund (ETHSX), invested in three health care companies and eliminated his position in three others during the second quarter of 2016. An active health care investor, Isaly seeks long-term capital growth in health care companies that have potential for high growth and increased market share. The portfolio manager generally has 80% of his assets in health sciences industries, including biotechnology, pharmaceuticals and medical equipment.
The ETHSX portfolio manager made three new buys during the second quarter: Biomarin Pharmaceutical Inc. (BMRN, Financial), UnitedHealth Group Inc. (UNH, Financial) and Medivation Inc. (MDVN, Financial). Among these three stocks, Isaly made the largest investment in Biomarin: during the second quarter, the manager purchased 370,500 shares at an average price of $85.12. Additionally, Isaly purchased 292,900 shares of Medivation at an average price of $49.98 and 177,300 shares of UnitedHealth at an average price of $129.10.
With a financial strength rating of 5 and a profitability rank of 4, Biomarin likely has a weak financial outlook. The commercial pharmaceutical company currently has a Piotroski F-score of 2, implying a weak business operation. Additionally, the company has negative returns on invested capital, operating margin and Greenblatt earnings yield. These financial metrics suggest that Biomarin could potentially go into distress in the short term.
On the other hand, UnitedHealth has a strong business outlook with a predictability rank of five stars. The health care plans company currently has a profitability rank of 7, likely due to one good sign: consistent per share revenue growth. Since the company’s ROIC is greater than its WACC, UnitedHealth generates value as it grows. Additionally, the company’s Greenblatt return on capital is currently 252.28%, which outperforms 74% of global health care companies.
On the sell side, Islay eliminated his positions in Wright Medical Group NV (WMGI, Financial), Impax Laboratories Inc. (IPXL, Financial) and Ironwood Pharmaceuticals Inc. (IRWD, Financial). The manager sold 1,855,647 shares of Wright Medical at an average price of $18.34, 773,500 shares of Impax at an average price of $32.59 and 1,237,800 shares of Ironwood at an average price of $11.67.
With a profitability rank of just 2, Wright Medical struggled to make a profit in recent years. Currently, most of the company’s margins and returns underperform at least 70% of global medical devices companies. Additionally, Wright Medical has a Piotroski F-score of 3 and an Altman Z-score of 0.81, suggesting moderate to severe distress.
Islay sold out Impax Laboratories and Ironwood Pharmaceuticals likely due to declining operating and gross margins. Among these two companies, Ironwood Pharmaceuticals experienced a worse margin decline during the past 10 years. Currently, Ironwood has an operating margin of -40.71% and a Greenblatt ROC of -300.81%. Both of these metrics underperform 85% of global drug manufacturers companies. Additionally, Ironwood is currently in moderate to severe distress based on its Altman Z-score and likely manipulated its earnings based on its Beneish M-score.
See also
You can view Isaly’s latest trades here. Additionally, you can read about strong medical companies or use the All-in-One Guru Screener to find good health care companies. The following screener closely implements Isaly’s strategy:
- The company’s industry is one of the following:
- Biotechnology
- Medical Devices
- The company has a profitability rank of at least 7.
- The company has a positive one-year and five-year revenue growth rate.
- The company has a positive five-year EPS growth rate.
In addition to the buys and sells listed above, Isaly increased his position in Intuitive Surgical Inc. (ISRG, Financial), one of the 14 stocks that meet all of the above criteria.
Disclosure: The author currently has no position in any of the stocks mentioned in the article.
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