According to the Benjamn Graham Lost Formula Screen, a Premium All-in-One Screener template, three health care stocks that are trading below the Graham Number are Bio-Rad Laboratories Inc. (BIO, Financial)(BIO.B, Financial), Innoviva Inc. (INVA, Financial) and Sage Therapeutics Inc. (SAGE, Financial).
Coronavirus pandemic marches on around the globe
On Monday, approximately one year since the World Health Organization declared Covid-19 a pandemic, global virus cases topped over 123 million, with the U.S. approaching 30 million cases according to Johns Hopkins University statistics. CNBC's analysis of the data shows that the seven-day average of new cases climbed over 5% in 27 U.S. states, with new cases across the nation up 1% from the prior week.
Centers for Disease Control and Prevention Director Dr. Rochelle Walensky said in a press briefing that the U.S. is still "at a critical point in the pandemic, a fork in the road" and that lifting restrictions is a "serious threat to the progress [the nation] has made."
The rise in coronavirus cases comes after European countries like France, Germany and Poland reinstated lockdown measures to curtail a potential "third wave" of infections.
Graham's lost formula identifies opportunities in health care
As the world continues grappling with pandemic fears, investors may find opportunities in health care stocks that meet Graham's "lost formula" criteria, which include a price-earnings ratio of between 7 and 10 and an equity-to-asset ratio of at least 0.5. Graham backtested the strategy from 1926 to 1976, concluding that the model portfolio returned approximately double that of the Dow Jones benchmark.
Graham also published in "The Intelligent Investor" two key criteria for purchases: The stock must trade below 15 times earnings and 1.5 times book value. Based on Graham's conservative measure, GuruFocus defined the Graham Number as the square root of 22.5 times the product of a company's tangible book per share and earnings per share.
GuruFocus' All-in-One Screener identified three companies that meet Graham's "lost formula" criteria and are trading below the Graham Number.
Bio-Rad
Shares of Bio-Rad (BIO, Financial) traded around $582.85, approximately 39% below its Graham value of $945.58.
The Hercules, California-based company develops, manufactures and markets products and solutions for the clinical diagnostics and life sciences markets. GuruFocus ranks Bio-Rad's financial strength 8 out of 10 on several positive investing signs, which include a high Piotroski F-score of 7, a strong Altman Z-score of 5.9 and debt ratios outperforming over 84% of global competitors.
Gurus with large positions in Bio-Rad include Ken Fisher (Trades, Portfolio)'s Fisher Investments and John Rogers (Trades, Portfolio)' Ariel Investment.
Innoviva
Shares of Innoviva (INVA, Financial) traded around $12.33, approximately 21% below its Graham value of $15.56. The stock is significantly undervalued based on Monday's price-to-GF Value ratio of 0.67.
Sage Therapeutics
Shares of Sage Therapeutics (SAGE, Financial) traded around $79.51, approximately 16% below its Graham value of $94.17.
The Cambridge, Massachusetts-based clinical-stage biotech company discovers and produces treatments for nervous system disorders. According to GuruFocus, Sage's equity-to-asset and debt-to-equity ratios outperform over 90% of global competitors, suggesting good financial strength.
Disclosure: The author has no positions in the stocks mentioned. The mention of stocks in this article do not constitute a recommendation. Investors must do their own research before investing in the stock market.
Further, different valuation methods may result in different valuation zones. For example, our exclusive GF Value method shows that Bio-Rad may be significantly overvalued even though the stock trades below the Graham Number.
Read more here:
- 5 High Dividend Yield Stocks Broadly Bought by Gurus
- 3 Companies With Upcoming Special Dividends as of March
- 4 Good Companies With High Piotroski F-Scores
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