6 Health Care Stocks John Paulson Is Betting On for 2015

 

NEW YORK (Stockpickr) -- At Stockpickr, we track the top holdings of a variety of high-profile investors, such as Warren Buffett and Carl Icahn.

One of our most popular professional portfolios is that of John Paulson's Paulson & Co.. Today, we thought we'd single out some of Paulson's recent buys.

What follows is a closer look at six health care stocks that Paulson bought in the most recently reported quarter ended Dec. 31. Five were position increases, and one was a new addition to Pauson's portfolio. They are ordered here by position size.

6. Vanda Pharmaceuticals

Vanda Pharmaceuticals (VNDA) comprises 0.3% of Paulson & Co.'s portfolio as of the most recently reported quarter. The 3.6 million-share position is an increase of 375,000 shares, or 11.5%, over the previous quarter.

TheStreet Ratings team rates Vanda Pharmaceuticals as a hold with a ratings score of C. TheStreet Ratings team has this to say about its recommendation:

"We rate Vanda Pharmaceuticals (VNDA) a hold. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and compelling growth in net income. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year."

Highlights from the analysis by TheStreet Ratings team include:

  • VNDA's very impressive revenue growth greatly exceeded the industry average of 36.4%. Since the same quarter one year prior, revenues leaped by 75.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • VNDA has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 17.14, which clearly demonstrates the ability to cover short-term cash needs.
  • Vanda Pharmaceuticals reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, Vanda Pharmaceuticals turned its bottom line around by earning $0.30 versus -$0.68 in the prior year. For the next year, the market is expecting a contraction of 326.7% in earnings (-$0.68 versus $0.30).
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. When compared to other companies in the Biotechnology industry and the overall market, Vanda Pharmaceuticals' return on equity is below that of both the industry average and the S&P 500.
  • VNDA's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 26.75%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.

You can view the full analysis from the report here: VNDA Ratings Report

5. Actavis

Actavis (ACT) comprises 2.1% of Paulson & Co.'s portfolio as of the most recently reported quarter. The 1.6 million-share position is an increase of 498,401 shares, or 46.9%, over the previous quarter.

TheStreet Ratings team rates Actavis as a buy with a ratings score of B-. TheStreet Ratings team has this to say about its recommendation:

"We rate Actavis (ACT) a buy. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance, good cash flow from operations, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings team include:

  • The revenue growth greatly exceeded the industry average of 13.6%. Since the same quarter one year prior, revenues rose by 46.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Compared to its closing price of one year ago, ACT's share price has jumped by 27.51%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, ACT should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • Net operating cash flow has increased to $811.60 million or 32.03% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -17.72%.
  • The gross profit margin for Actavis is rather high; currently it is at 58.07%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -18.06% is in-line with the industry average.
  • The current debt-to-equity ratio, 0.55, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that ACT's debt-to-equity ratio is low, the quick ratio, which is currently 0.52, displays a potential problem in covering short-term cash needs.

You can view the full analysis from the report here: ACT Ratings Report

4. Salix Pharmaceuticals

Salix Pharmaceuticals (SLXP) comprises 3.4% of Paulson & Co.'s portfolio as of the most recently reported quarter. The 5.8 million-share position was a new buy for the fund.

TheStreet Ratings team rates Salix Pharmaceuticals as a hold with a ratings score of C. TheStreet Ratings team has this to say about its recommendation:

"We rate Salix Pharmaceuticals (SLXP) a hold. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. Among the primary strengths of the company is its solid stock price performance. At the same time, however, we also find weaknesses including deteriorating net income, disappointing return on equity and feeble growth in the company's earnings per share."

Highlights from the analysis by TheStreet Ratings team include:

  • Compared to its closing price of one year ago, SLXP's share price has jumped by 45.36%, exceeding the performance of the broader market during that same time frame. Although SLXP had significant growth over the past year, our hold rating indicates that we do not recommend additional investment in this stock at the current time.
  • SLXP, with its very weak revenue results, has greatly underperformed against the industry average of 13.1%. Since the same quarter one year prior, revenues plummeted by 94.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Salix Pharmaceuticals has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, Salix Pharmaceuticals swung to a loss, reporting -$6.52 versus $2.14 in the prior year. This year, the market expects an improvement in earnings ($4.00 versus -$6.52).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Pharmaceuticals industry. The net income has significantly decreased by 650.4% when compared to the same quarter one year ago, falling from $52.26 million to -$287.65 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Pharmaceuticals industry and the overall market, Salix Pharmaceuticals' return on equity significantly trails that of both the industry average and the S&P 500.

You can view the full analysis from the report here: SLXP Ratings Report

3. Mylan

Mylan (MYL) comprises 4.4% of Paulson & Co.'s portfolio as of the most recently reported quarter. The 14.95 million-share position is an increase of 2.5 million shares, or 19.6%, over the previous quarter.

TheStreet Ratings team rates Mylan as a buy with a ratings score of B+. TheStreet Ratings team has this to say about its recommendation:

"We rate Mylan (MYL) a buy. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, reasonable valuation levels, increase in net income and growth in earnings per share. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings team include:

  • The revenue growth came in higher than the industry average of 13.1%. Since the same quarter one year prior, revenues rose by 15.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Pharmaceuticals industry and the overall market, Mylan's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the Pharmaceuticals industry average, but is less than that of the S&P 500. The net income increased by 5.0% when compared to the same quarter one year prior, going from $180.23 million to $189.20 million.
  • Mylan's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, Mylan increased its bottom line by earning $2.34 versus $1.58 in the prior year. This year, the market expects an improvement in earnings ($4.15 versus $2.34).

You can view the full analysis from the report here: MYL Ratings Report

2. Mallinckrodt

Mallinckrodt (MNK) comprises 4.6% of Paulson & Co.'s portfolio as of the most recently reported quarter. The 9 million-share position is an increase of 12,293 shares, or 0.1%, over the previous quarter.

TheStreet Ratings team rates Mallinckrodt as a hold with a ratings score of C. TheStreet Ratings team has this to say about its recommendation:

"We rate Mallinckrodt (MNK) a hold. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. However, as a counter to these strengths, we find that the growth in the company's earnings per share has not been good."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • MNK's very impressive revenue growth greatly exceeded the industry average of 13.6%. Since the same quarter one year prior, revenues leaped by 60.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.78, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. To add to this, MNK has a quick ratio of 1.84, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The gross profit margin for Mallinckrodt is currently very high, coming in at 71.58%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of 10.70% trails the industry average.
  • Compared to other companies in the Pharmaceuticals industry and the overall market, Mallinckrodt's return on equity significantly trails that of both the industry average and the S&P 500.
  • Mallinckrodt's earnings per share from the most recent quarter came in slightly below the year earlier quarter. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, Mallinckrodt swung to a loss, reporting -$3.57 versus $0.06 in the prior year. This year, the market expects an improvement in earnings ($7.10 versus -$3.57).

You can view the full analysis from the report here: MNK Ratings Report

1. Allergan

Allergan (AGN) comprises 7% of Paulson & Co.'s portfolio as of the most recently reported quarter. The 6.4 million-share position is an increase of 992,800 shares, or 18.5%, over the previous quarter.

TheStreet Ratings team rates Allergen as a buy with a ratings score of A+. TheStreet Ratings team has this to say about its recommendation:

"We rate Allergan (AGN) a buy. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, expanding profit margins and good cash flow from operations. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

Highlights from the analysis by TheStreet Ratings team include:

  • The revenue growth came in higher than the industry average of 13.6%. Since the same quarter one year prior, revenues rose by 13.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • AGN's debt-to-equity ratio is very low at 0.28 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 3.78, which clearly demonstrates the ability to cover short-term cash needs.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Pharmaceuticals industry and the overall market, Allergan's return on equity exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for Allergan is currently very high, coming in at 91.04%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 28.11% significantly outperformed against the industry average.
  • Net operating cash flow has increased to $694.20 million or 34.71% when compared to the same quarter last year. In addition, Allergan has also vastly surpassed the industry average cash flow growth rate of -17.72%.

You can view the full analysis from the report here: AGN Ratings Report

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