Two Small-cap Healthcare Stocks With…Earnings?

The world of small-cap health care companies is a familiar one, right? Small biotech and pharma companies have promising drugs in their pipeline, not profits or revenues. It’s just understood. Picking out a small-cap health care stock to invest in is a matter of crossing your fingers, watching for updates on the clinical trials, and prayer.

While that’s largely true, that doesn’t mean that there aren’t health care companies making money. While the quality of a company’s product pipeline is key for biotech companies, that doesn’t mean the sector doesn’t boast at least a few small-cap companies offering real earnings. Even a dividend.

So here are two small-cap health care companies that are really bucking the trend by posting real profits that are available at a decent price.

PDL BioPharma, Inc. (PDLI)

Market Cap: $1.26 billion

P/E: 5.53

PDL BioParma holds patents for humanized antibodies that can be used to targeted treatment of diseases like cancer. While cancer drugs usually affect healthy cells as well as cancer cells, limiting their safe dosage, targeted treatments allow for higher doses that can be more effective than traditional chemotherapy. PDL BioPharma doesn’t make any of these drugs themselves, but licensing them out to a variety of other companies has allowed the company to make plenty of cash. PDL BioPharma have a tiny P/E ratio, an operating margin over 90 percent, a profit margin over 60 percent, and an EPS that cleared over $0.30 a share three out of the last four quarters. That fourth quarter was their last, when it cleared $0.60. Oh, and there’s the small (actually, not at all small) matter of its dividend. That’s right, a dividend. And a hefty one, $0.15 a share or a 6.69 percent yield.

Obviously, there’s bound to be a reason why the price is so attractive, and PDL does have one major wart: its patent for its humanized antibodies is expiring in 2014. The company currently has six drugs in early phase development in hopes of replacing the revenues it’s about to start losing, but PDL BioPharma’s anything but a sure bet. It’s been rising this year, though. Since late January shares are up almost 35 percent.

Orthofix International N.V. (OFIX)

Market Cap: $416.11 million

P/E: 8.95

Orthofix is a medical device company that specializes in solutions for the repair and regeneration of the spine. The company’s main products are spinal implants, but it sells a number of other devices and treatments used by musculoskeletal specialists.

And the bigger story is that there’s a reason why Orthofix has an attractively low P/E ratio: it’s stock started tanking in May following an earnings report that showed flagging sales and earnings and prompted Mizuho to cut its price target from $45 a share to $28 a share. Year to date, shares are off over 45 percent, reaching four-year lows.

However, the losses appear to have leveled off, and the stock crossed its 20-day moving average in mid-October, with that average appearing to act as support since then. And while it may have the look of a falling knife to some, Orthofix has started to give some value investors a twinkle in their eye. With demand for its products projected to rise and has fundamentals that are more than attractive. The company’s P/E and P/B (1.03) are both about a third of the industry average, and its P/S of 0.93 is less than half the industry average. Orthofix isn’t without its issues, but its collapsing share price appears to have potentially created an attractive price for the company’s earnings.