Fears that a Clinton administration would introduce
price controls pressured pharmaceutical industry share prices in the
months preceding the election. With such controls considered
unlikely under Trump, pharma prices rebounded substantially last
week, but many are still below year-ago highs.
Biotechs Have Best Upside Potential
Within the pharmaceutical industry, in my view at least, biotechs
have the most upside potential. These are firms that employ
biological processes to produce their products as opposed to
traditional pharmaceutical makers that attempt to discover curative
characteristics of existing chemicals. The attraction of biotechs is
that they are usually smaller than traditional pharmas, but the
products in their pipelines can have blockbuster potential.
Here’s how you can use the free Finviz stock screener to find
biotech candidates worth investigating. Start by selecting Screener
on the Finviz home page (http://finviz.com). Finviz uses “filters”
to define selection criteria. Click “All” on the filters bar to
display the available filters. Then, use the dropdown menu
associated with each filter that you want to use to specify
Define Candidate Universe
Start by limiting your list to biotech stocks by using the Industry
filter to select Biotechnology.
Institutional investors such as mutual funds employ squads of
analysts to research potential investments. It makes sense to
piggyback on their efforts rather than doing the work yourself. Do
that using the Institutional Ownership filter by selecting “Over 50
percent” which means that the institutional players hold at least
half of each passing firm’s outstanding shares.
Stock analysts issue buy/sell/hold advice on stocks that they
follow. Since they’re known for being easy graders, it’s best to
avoid stocks that they’re not advising buying. Use the Analyst
Recommendation filter and specify “buy or better.”
Fastest Growing Biotechs
Your best bets in any industry are stocks with strong earnings
growth prospects. For biotechs, you should require a least
10 percent expected annual growth. Use the “EPS Growth Next
Year” filter and specify “Over 10 percent.”
In almost any industry, the most
profitable candidates are your best bets. Return on Equity, a widely
used profitability gauge, compares 12-months’ net income to
shareholders equity (book value). Use the Return on Equity filter
and require “over 15 percent,” which will limit your list to the
most profitable biotechs.
Biotechs with promising products in development, but none yet on the
market, are risky business. We’ll rule them out by requiring
meaningful sales. Unfortunately, we can’t directly screen for sales
on Finviz. We’ll get around that by requiring a reasonable price to
sales ratio, which compares share price to ‘sales per share’ (total
sales divided by total shares). Most firms racking up meaningful
sales would have price/sales ratios below 10. Use the “P/S” filter
and require “under 10”
Finally, use the Price filter and select “over $5” to assure that
your screen only lists stocks trading above the level. I’ve found
that the cheaper the stock, the higher the risk. In my experience,
stocks trading under $5 almost always have problems.
My screen turned up three biotechs: Cambrex (CBM), Celgene (CELG)
and Regeneron Pharmaceuticals (REGN.
always, consider the stocks turned up by this screen as research
candidates, not a buy list. The more you know about your stocks, the
better your results.