Big players like Johnson & Johnson (JMJ) and Pfizer (PFE) get most of the attention in the pharmaceuticals/biotech sector, but plenty of smaller, lesser-known companies can make an investor's portfolio feel a whole lot better. Here are three that my "guru-strategies" screens like.
As regular readers know, I hunt for stocks using screens based on the investment theories of great stockpickers like Warren Buffett and the late Benjamin Graham.
Here's what my "guru screens" recently turned up among small bio-pharma plays:
PDL BioPharma (PDLI)
My Ben Graham screen strongly supports buying PDLI, which pioneered what's called the "humanization of monoclonal antibodies."
PDL BioPharma gets royalties for intellectual-property asset management, and my screen likes the stock's high "current ratio" (current total assets relative to current total liabilities).
PDLI's ratio comes in at better than 13.0 -- well above the screen's minimum of 2.0. The company's earnings per share have also risen an impressive 62.1% over the past decade, while the stock's trailing price-to-earnings ratio is a low 1.8.
All in all, this is a growing company that's well-managed financially and has a nicely priced stock.
Five Prime Therapeutics (FPRX)
My Joel Greenblatt screen is a big fan of this company, which discovers and develops novel protein therapeutics in conjunction with larger pharmaceutical firms.
Unlike most of my guru strategies, this screen relies on just two variables -- earnings yield and total return on capital. It analyzes all Nasdaq and New York Stock Exchange companies for both and creates a combined ranking for each name.
FPRX comes in an impressive seventh place from among the thousands of publicly traded firms that my screen looks at.
Anika Therapeutics (ANIK)
My Peter Lynch strategy strongly recommends ANIK, which develops and commercializes therapeutic products for joint pain associated with osteoarthritis.
This screen's primary variable is the P/E/G ratio, which measures how much an investor pays for growth. The screen considers a P/E/G of up 1.0 as acceptable, and Anika has a very favorable 0.56 P/E/G.
Another variable in the company's favor: No debt.
The Bottom Line
You don't need to buy household names to find good investments in pharmaceuticals.
The three companies above are under many investors' radar screens, but offer excellent potential.