At Equities.com we’ve profiled positive healthcare stocks we like, whether we felt they had strong fundamentals, were unfairly maligned by the market but were due to turn around, or have been identified by our research team as being a “Small-Cap Star.” But we thought it’d be interesting to flip the script, and instead of looking for healthcare stocks with potential, to look at those that were the exact opposite. That is, healthcare stocks to avoid.
Our formula for finding them was simple: take our criteria for a “healthy” healthcare stock, and invert it. So, here’s exactly what we went looking for:
1) Healthcare stocks with a quick and current ratio less than one.
Healthcare is a competitive and very difficult industry to traverse. Technology may or may not work, and your product may need to be tested for many years. A strong backing of cash and short term assets creates an excellent safety net. So a quick and current ratio less than one means the company doesn’t have the adequate equity to cushion unforeseen blows.
2) Inside ownership less than 5 percent.
It’s important for the company executives to have confidence in the idea. A very low rate of inside ownership implies executives don’t believe the company is going to take off anytime soon.
3) Analyst recommendation of “hold” or worse.
While we trust our own metrics, it doesn’t hurt to have expert opinion on your side. We felt coupling analyst indifference with our own “secret sauce” would yield companies to avoid.
We found four healthcare stocks on the market that possess all three of these dubious attributes. They are:
MannKind Corporation (MNKD) This company focuses on the development and commercialization of products designed to help the sufferers of diabetes and cancer. MannKind is definitely unpopular with a certain segment of investors, and currently sports f a float short above 30 percent.
However, MannKind is up 122.18 percent on the year.
Chemed Corp. (CHE) Another biotech that is currently being heavily shorted by Wall Street, Chemed also holds the dubious distinction of being the only stock on the list to pay a dividend – a practice often frowned upon by analysts concerning healthcare stocks. Chemed provides end-of-life hospice care through its VITAS Service.
Chemed is up a scant .34 percent on the year.
Healthways Inc. (HWAY)
Healthway is a general well-being corporation that has programs to help patients stop smoking, get in better shape, or better manage their diabetes, among others. The company owns SilverSneakers, a fitness program targeted towards seniors.
Healthways is up 49.31 percent on the year.
Sterotaxis Inc. (STXS)
This St. Louis based company Stereotaxis develops probes, devices, therapeutic and magnetic surgery delivery systems. The company is worth roughly two percent of what it did five years ago, when the stock touched $160 a share. It currently trades for $3.26.
The company is down .31 percent on the year.
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