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James Li
James Li
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4 Health Care Companies With Strong Business Quality

Stocks with high Greenblatt Magic Formula rank as coronavirus pandemic surges

October 19, 2020 | About:

In light of coronavirus cases increasing both domestically and internationally, four health care companies with strong business quality are Biogen Inc. (NASDAQ:BIIB), Novo Nordisk A/S (NYSE:NVO), ResMed Inc. (NYSE:RMD) and Illumina Inc. (NASDAQ:ILMN) according to the All-in-One Screener, a Premium feature of GuruFocus.

U.S. markets slip as coronavirus cases increase around the globe

On Monday, the Dow Jones Industrial Average closed at 28,195.42, down 410.89 points from last Friday's close of 28,606.31 as surging coronavirus cases around the globe dampened investor sentiment.

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According to Johns Hopkins University statistics, global cases of Covid-19 topped 40 million as various parts of Europe and the U.S. battle a "second wave" of new infections. CNBC analysis of the data shows that coronavirus cases in Europe and the U.S. are increasing at a seven-day average rate of approximately 187 per million people and 162 per million people. In the U.S., 38 states have seen new virus cases increase by at least 5% as of Friday.

New Screener feature allows for customized ranking of results

GuruFocus launched over the past few weeks a new Screener feature where users can take a list of Screener results and apply a user-defined ranking based on multiple columns. For example, one can screen for health care companies with strong financial strength and profitability metrics and then apply Joel Greenblatt (Trades, Portfolio)'s magic formula to rank the companies.

Greenblatt, manager of Gotham Capital, ranked companies based on a combination of two metrics: earnings yield and return on capital. Stocks that have high earnings yield and return on capital are assigned a higher rank.

Biogen

Biogen, the top-ranked stock of the Screener results, has a Greenblatt earnings yield of 16.14% and a Greenblatt return on capital of 159.76%. The two metrics outperform over 93% of global drug manufacturing competitors.

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GuruFocus ranks the Cambridge, Massachusetts-based drug manufacturer's profitability 10 out of 10 on several positive investing signs, which include a five-star business predictability rank, a high Piotroski F-score of 7 and an operating margin that has increased approximately 2.10% per year on average over the past five years and is outperforming over 98% of global competitors.

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Gurus with large holdings in Biogen include PRIMECAP Management (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies and the Vanguard Health Care Fund (Trades, Portfolio).

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Novo Nordisk

Novo Nordisk ranks second on the list with an earnings yield of 4.95% and return on capital of 102.44%. The two metrics outperform over 94% of global biotech competitors.

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GuruFocus ranks the Denmark-based biotech company's profitability 9 out of 10 on several positive investing signs, which include a five-star business predictability rank and an operating margin that outperforms over 98% of global competitors.

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ResMed

ResMed has a return on capital of 76.72% and earnings yield of 2.86%. GuruFocus ranks the San Diego-based medical device company's profitability 10 out of 10 on several positive investing signs, which include a five-star business predictability rank, a high Piotroski F-score of 7 and an operating margin that has increased approximately 2.1% per year on average over the past five years and is outperforming over 90% of global competitors.

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Illumina

Illumina has a return on capital of just 49.59% and earnings yield of 2%. GuruFocus ranks the San Diego-based medical research company's profitability 9 out of 10 on several positive investing signs, which include expanding operating margins and a five-star business predictability rank.

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Jerome Dodson (Trades, Portfolio)'s Parnassus Endeavor Fund (Trades, Portfolio) established a holding in Illumina during the third quarter, buying 110,000 shares.

Disclosure: The author is long Biogen.

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About the author:

James Li
I am an editorial researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

Visit James Li's Website


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