MKM Partners' 4 Health Care Stocks to Sell Before June

NEW YORK (TheStreet) -- Over the past 10 years, June has been one of the weakest months for equities. This means stock selection -- both buying and selling -- will be critical over the short term.

The stock market in June has averaged a 1.32% decline over the past 10 years, Jonathan Krinsky, the chief market technician at MKM Partners, wrote in a technical strategy report published Tuesday. Meanwhile, July has bounced back, averaging a 1.68% gain, he said.

"June will be here quickly, and it has been by far the worst month for stocks over the last 10 years," Krinsky wrote. "Therefore, some weakness into early summer would not be surprising, but in our view that would set-up a buying opportunity in July."

"We think this market continues to be two steps forward one step back, where stock selection is more important than market direction," he added.

The report highlights 40 contrarian stock ideas by screening the Russell 3000 to find 30 stocks that have less than 25% analyst buy ratings, but have bullish charts. The report also highlights 10 stocks that have over 75% analyst buy ratings but have bearish charts.

The sell screen included four health care stocks. Below, TheStreet paired those health care stocks with ratings from TheStreet Ratings. And when you're done be sure to check out MKM Partner's contrarian tech picks to buy for June.

TheStreet Ratings, TheStreet's proprietary ratings tool, projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

Note: Year-to-date returns are based on May 26, 2015 closing prices.

AIRM Chart AIRM data by YCharts

1. Air Methods Corp. (AIRM)
Sub-industry: Health Care Services
Market Cap: $1.7 billion
Year-to-date return: -3.9%
Air Methods Corporation, together with its subsidiaries, provides air medical emergency transport services and systems in the United States. The company operates in the Air Medical Services (AMS), Tourism, and United Rotorcraft (UR) segments.

TheStreet Ratings: Buy, B
TheStreet Ratings said: "We rate AIR METHODS CORP (AIRM) a BUY. This is driven by a few notable 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 growth in earnings per share, compelling growth in net income, revenue growth, good cash flow from operations and notable return on equity. We feel its strengths outweigh the fact that the company shows low profit margins."

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

  • AIR METHODS CORP has improved earnings per share by 10.3% 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. We feel that this trend should continue. During the past fiscal year, AIR METHODS CORP increased its bottom line by earning $2.57 versus $1.54 in the prior year. This year, the market expects an improvement in earnings ($2.99 versus $2.57).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Health Care Providers & Services industry average. The net income increased by 16.0% when compared to the same quarter one year prior, going from $10.89 million to $12.63 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 13.3%. Since the same quarter one year prior, revenues slightly increased by 7.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Net operating cash flow has significantly increased by 127.83% to $34.40 million when compared to the same quarter last year. In addition, AIR METHODS CORP has also vastly surpassed the industry average cash flow growth rate of 1.60%.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Health Care Providers & Services industry and the overall market, AIR METHODS CORP's return on equity exceeds that of both the industry average and the S&P 500.

 

SGMO Chart SGMO data by YCharts

2. Sangamo BioSciences Inc. (SGMO)
Sub-industry: Biotechnology
Market Cap: $867 million 
Year-to-date return: -18%

Sangamo BioSciences, Inc., a clinical stage biopharmaceutical company, focuses on the research, development, and commercialization of engineered DNA-binding proteins as novel therapeutic products for unmet medical needs in the United States.

TheStreet Ratings: Hold, C-
TheStreet Ratings said: "We rate SANGAMO BIOSCIENCES INC (SGMO) 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 impressive record of earnings per share growth. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and a generally disappointing performance in the stock itself."

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

  • SGMO's very impressive revenue growth greatly exceeded the industry average of 19.7%. Since the same quarter one year prior, revenues leaped by 66.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • SGMO 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 10.18, which clearly demonstrates the ability to cover short-term cash needs.
  • SANGAMO BIOSCIENCES INC has improved earnings per share by 33.3% 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, SANGAMO BIOSCIENCES INC continued to lose money by earning -$0.39 versus -$0.47 in the prior year. For the next year, the market is expecting a contraction of 43.6% in earnings (-$0.56 versus -$0.39).
  • In its most recent trading session, SGMO has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • Net operating cash flow has significantly decreased to -$2.39 million or 121.02% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
CSII Chart CSII data by YCharts

3. Cardiovascular Systems Inc. (CSII)
Sub-industry: Health Care Equipment
Market Cap: $870 million
Year-to-date return: -8.5%

Cardiovascular Systems, Inc., a medical device company, focuses on developing and commercializing minimally invasive treatment solutions for vascular diseases.

TheStreet Ratings: Sell, D
TheStreet Ratings said: "We rate CARDIOVASCULAR SYSTEMS INC (CSII) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity and feeble growth in its earnings per share."

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

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed compared to the Health Care Equipment & Supplies industry average, but is greater than that of the S&P 500. The net income has decreased by 9.7% when compared to the same quarter one year ago, dropping from -$9.71 million to -$10.66 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Health Care Equipment & Supplies industry and the overall market, CARDIOVASCULAR SYSTEMS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • CARDIOVASCULAR SYSTEMS INC's earnings per share declined by 6.3% in the most recent quarter compared to 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, CARDIOVASCULAR SYSTEMS INC reported poor results of -$1.24 versus -$1.11 in the prior year. This year, the market expects an improvement in earnings (-$1.07 versus -$1.24).
  • The gross profit margin for CARDIOVASCULAR SYSTEMS INC is currently very high, coming in at 77.84%. Regardless of CSII's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CSII's net profit margin of -22.67% significantly underperformed when compared to the industry average.
  • Compared to where it was a year ago, the stock is now trading at a higher level, and has traded in line with the S&P 500. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.
KERX Chart KERX data by YCharts

4. Keryx Biopharmaceuticals Inc. (KERX)
Sub-industry: Biotechnology
Market Cap: $1 billion
Year-to-date return: -27.3%

Keryx Biopharmaceuticals, Inc., a biopharmaceutical company, focuses on providing therapies for patients with renal disease in the United States.

TheStreet Ratings: Sell, D
TheStreet Ratings said: "We rate KERYX BIOPHARMACEUTICALS INC (KERX) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."

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

  • 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 Biotechnology industry. The net income has significantly decreased by 105.0% when compared to the same quarter one year ago, falling from -$13.53 million to -$27.74 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 Biotechnology industry and the overall market, KERYX BIOPHARMACEUTICALS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to -$35.28 million or 251.14% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The share price of KERYX BIOPHARMACEUTICALS INC has not done very well: it is down 18.44% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • KERYX BIOPHARMACEUTICALS INC 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, KERYX BIOPHARMACEUTICALS INC reported poor results of -$1.21 versus -$0.57 in the prior year. This year, the market expects an improvement in earnings (-$1.00 versus -$1.21).

 

 

 

 

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