I have always attempted to find a simple way to screen for strong stocks that will make one money over time. Obviously, we want to outperform Mr. Market, because why put the time and effort into stock picking if we cannot do better than an index fund?
Beginning in 2004, I started the “Barnacle Health Care Fund“. It was based on a simple scoring system that preferably looked for companies that had:
- Return on Equity > 20%
- Price to Book < 1.5
- Price to Sales < 1
- Free Cash Flow
- Current Ratio > 2
- Quick Ratio > 1
- Inventory Ratio < 1.25
- Net Margins > 10%
- Gross Margins > 60%
- Debt to Equity < 1
- Adequate trading volume
Each criteria was given a number of points. The most possible points is 14. I use a similar technique for my Metals Fund and Energy and Utility Fund.
I will say that this works. Since 2004, the Health Care Fund has averaged an annualized 11.23% return. The S&P 500’s annualized return during that same period is 8.57%. It also outperforms the Dow Jones U.S. Health Care Index at 9.32% during the same period.
So, in my reviving my funds, I reran the screen, and these are the candidates that will be added to the fund.
|ABBV||AbbVie Inc.||Drug Manufacturers – Major||USA|
|ANIK||Anika Therapeutics Inc.||Biotechnology||USA|
|BRLI||Bio-Reference Laboratories Inc.||Medical Laboratories & Research||USA|
|COO||The Cooper Companies Inc.||Medical Instruments & Supplies||USA|
|COV||Covidien plc||Medical Instruments & Supplies||Ireland|
|CYBX||Cyberonics Inc.||Medical Appliances & Equipment||USA|
|EW||Edwards Lifesciences Corp.||Medical Appliances & Equipment||USA|
|GENT||Gentium S.p.A||Drug Manufacturers – Other||Italy|
|GMED||Globus Medical, Inc.||Medical Appliances & Equipment||USA|
|ISRG||Intuitive Surgical, Inc.||Medical Appliances & Equipment||USA|
|JAZZ||Jazz Pharmaceuticals plc||Biotechnology||USA|
|JNJ||Johnson & Johnson||Drug Manufacturers – Major||USA|
|LLY||Eli Lilly & Co.||Drug Manufacturers – Major||USA|
|MASI||Masimo Corporation||Medical Appliances & Equipment||USA|
|MDT||Medtronic, Inc.||Medical Appliances & Equipment||USA|
|MSA||Mine Safety Appliances Co.||Medical Appliances & Equipment||USA|
|NVO||Novo Nordisk A/S||Drug Manufacturers – Other||Denmark|
|PFE||Pfizer Inc.||Drug Manufacturers – Major||USA|
|PRGO||Perrigo Co.||Drug Related Products||USA|
|QCOR||Questcor Pharmaceuticals, Inc.||Biotechnology||USA|
|REGN||Regeneron Pharmaceuticals, Inc.||Biotechnology||USA|
|RMD||ResMed Inc.||Medical Appliances & Equipment||USA|
|TARO||Taro Pharmaceutical Industries Ltd.||Drug Manufacturers – Other||Israel|
|USNA||USANA Health Sciences Inc.||Drug Related Products||USA|
|UTHR||United Therapeutics Corporation||Drug Manufacturers – Other||USA|
|VAR||Varian Medical Systems Inc.||Medical Appliances & Equipment||USA|
|VIVO||Meridian Bioscience Inc.||Diagnostic Substances||USA|
All of these companies score at least 12 points, and none scored 14 points. While there are no perfect candidates, it does have a lot of attractive options if one wants to add some health care presence in their portfolio.
For disclosure purposes, I recently sold my personal position in Questcor Pharmaceuticals (NASDAQ: QCOR). With some of the noise coming out of Citron’s Andrew Left, and the volatility it has shown, it no longer fits into my personal risk tolerance profile. Other than that, I have no activity with these companies.