NEW YORK (TheStreet) -- An aging population means the outlook is positive for health care equipment and supplies companies, but not every stock in the industry is a buy. In fact, some you should avoid or, if you own them, sell immediately.
The industry is made up of two lines of business -- supplying health care equipment to hospitals and patients in outpatient care, while the other creates high-tech medical equipment to improve efficiency and accuracy of patient care.
"Not only is the average life span increasing, but people are also remaining much more active later in life than in the past," according to industry analysis by TheStreet Ratings. "This has expanded demand for many products supplied by this industry ranging from medical devices for serious conditions that, more often than not, affect the older population (such as pacemakers and stents) to devices that help improve the quality of life (such as joint replacements and laser eye surgery).
Still investors should be wary of just blindly investing in the industry. The stocks on this list are all health care supplies companies that are rated sell with a D or worse. When you're done be sure to check out the nine office REITs to buy.
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 June 3, 2015 closing prices.ATRS data by YCharts
1. Antares Pharma Inc. (ATRS)
Market Cap: $349 million
Year-to-date return: -10.5%
Antares Pharma, Inc. operates as a specialty pharmaceutical company that focuses on developing and commercializing self-administered parenteral pharmaceutical products and technologies worldwide.
TheStreet Ratings: Sell, D
TheStreet Ratings said: "We rate ANTARES PHARMA INC (ATRS) a SELL. This is driven by a number of negative factors, 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 disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- 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 Health Care Equipment & Supplies industry and the overall market, ANTARES PHARMA 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 -$10.66 million or 53.12% when compared to the same quarter last year. Despite a decrease in cash flow ANTARES PHARMA INC is still fairing well by exceeding its industry average cash flow growth rate of -74.03%.
- ATRS'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 30.58%, 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.
- The gross profit margin for ANTARES PHARMA INC is rather high; currently it is at 60.52%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, ATRS's net profit margin of -81.31% significantly underperformed when compared to the industry average.
- ANTARES PHARMA INC has improved earnings per share by 28.6% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ANTARES PHARMA INC reported poor results of -$0.27 versus -$0.16 in the prior year. This year, the market expects an improvement in earnings (-$0.10 versus -$0.27).
- You can view the full analysis from the report here: ATRS Ratings Report