As the first half of 2020 comes to a close, investors are cautiously looking toward the remainder of the year as uncertainty surrounding the full impact the coronavirus will have on the economy continues to remain a concern.
Despite these worries, value opportunities may be found among companies that outperformed the Standard & Poor’s 500 Index over the past six months. As of June 30, the GuruFocus All-in-One Screener, a Premium feature, found several stocks that with a market cap over $5 billion that had a higher return relative to the index for the period. It also looked for stocks trading below Peter Lynch value.
In addition, the screener found value opportunities among companies in the health care industry, which was boosted as drugmakers scrambled to find solutions to combat the Covid-19 virus. According to the GuruFocus Industry Overview page, the industry is composed of the following sectors:
Based on these criteria, health care stocks that outperformed the S&P 500 by at least 15% over the last six months are AmerisourceBergen Corp. (ABC, Financial), Bio-Rad Laboratories Inc. (BIO, Financial) and United Therapeutics Corp. (UTHR, Financial). The S&P 500 has posted a return of roughly -4.66% for the year so far.
AmerisourceBergen
With a gain of nearly 20% year to date, AmerisourceBergen has a $20.13 billion market cap; its shares were trading around $99.70 on Tuesday with a price-earnings ratio of 13.03, a price-book ratio of 5.72 and a price-sales ratio of 0.11.
The GuruFocus valuation rank of 7 out of 10 suggests the stock is undervalued despite the fact its share price and price-sales ratio were near multiyear highs.
The Chesterbrook, Pennsylvania-based company, which distributes pharmaceutical products at wholesale prices to hospitals and health care systems, has a GuruFocus financial strength rating of 6 out of 10. In addition to adequate interest coverage, AmerisourceBergen is supported by a high Altman Z-Score of 4.99 even though its assets are building up at a faster rate than revenue is growing. The return on invested capital also significantly outweighs the weighted average cost of capital, indicating good profitability potential.
AmerisourceBergen’s profitability scored an 8 out of 10 rating as a result of an expanding operating margin and returns that outperform more than half of its competitors, consistent earnings and revenue growth and a high Piotroski F-Score of 8, which indicates business conditions are healthy. The company also has a perfect predictability rank of five out of five stars. According to GuruFocus, companies with this rank typically see their stocks gain an average of 12.1% annually over a 10-year period.
Of the gurus invested in the stock, Pioneer Investments (Trades, Portfolio) has the largest position with a 0.98% stake. Other top guru shareholders include Seth Klarman (Trades, Portfolio), Larry Robbins (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Jim Simons (Trades, Portfolio)’ Renaissance Technologies.
Bio-Rad Laboratories
Having climbed over 20% year to date, Bio-Rad Laboratories has a market cap of $13.04 billion; its shares were trading around $441.79 on Tuesday morning with a price-earnings ratio of 8.55, a price-book ratio of 2.13 and a price-sales ratio of 5.76.
The GuruFocus valuation rank of 2 out of 10 indicates the stock is overvalued.
The medical device manufacturer, which is headquartered in Hercules, California, has a GuruFocus financial strength rating of 7 out of 10. In addition to sufficient interest coverage, the company is supported by a robust Altman Z-Score of 5.43. The ROIC, however, is outweighed by the WACC, suggesting the company spends more money than it makes.
Bio-Rad’s profitability scored a 6 out of 10 rating, driven by operating margin expansion, strong returns that outperform a majority of industry peers and a moderate Piotroski F-Score of 5, which implies conditions are stable. The company has a one-star business predictability rank. GuruFocus says companies with this rank typically see their stocks gain an average of 1.1% per year.
With 0.71% of outstanding shares, Ken Fisher (Trades, Portfolio) is Bio-Rad’s largest guru shareholder. John Rogers (Trades, Portfolio), NWQ Managers (Trades, Portfolio), Simons’ firm, Mario Gabelli (Trades, Portfolio), Chuck Royce (Trades, Portfolio), Greenblatt and Pioneer also have positions in the stock.
United Therapeutics
Posting a gain of over 25% for the year so far, United Therapeutics has a $5.29 billion market cap; its shares were trading around $120.44 on Tuesday with a price-earnings ratio of 10.02, a price-book ratio of 1.78 and a price-sales ratio of 3.66.
According to the GuruFocus valuation rank of 7 out of 10, the stock is undervalued even though the share price and price-sales ratio are at multi-year highs.
The Silver Spring, Maryland-based biotech company, which specializes in developing drugs to treat pulmonary arterial hypertension, has a GuruFocus financial strength rating of 7 out of 10. In addition to comfortable interest coverage, United Therapeutics is supported by a robust Altman Z-Score of 5.56. The ROIC outweigh the WACC, however, so it has good profitability potential even though its assets are building up at a faster rate than revenue is growing.
United Therapeutics’ profitability scored an 8 out of 10 rating, driven by strong margins and returns that outperform a majority of competitors. The company also has a high Piotroski F-Score of 7. Despite recording a decline in revenue per share growth over the past five years, it also has a one-star predictability rank.
Simons’ firm has the largest stake in the company with 8.16% of outstanding shares. Steven Cohen (Trades, Portfolio), Charles Brandes (Trades, Portfolio), NWQ, Greenblatt, Jeremy Grantham (Trades, Portfolio) and Pioneer also own the stock.
Disclosure: No positions.
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