Buy These 6 Risky Pharmaceutical Stocks for Big Upside Potential

NEW YORK (TheStreet) -- Health care stocks in general have had outsized performance this year -- aided by strong gains in biotech and pharmaceutical stocks.

The health care sector is up a whopping 157% this year since Jan. 2 compared to a mere 2.9% from the overall S&P 500 in the same time period.

Looking to add even more performance to your portfolio? Consider pharmaceutical stocks with so-called high beta -- a common measurement of volatility. Volatility can be great for your portfolio -- if the volatile stocks move in a positive direction, that is.

So if you're a risk taker, consider these five pharmaceuticals stocks. The stocks on this list are all rated buy, with a B or better rating. The stocks are also among the most volatile stocks in their sector, each with beta measurements of greater than 1. And when you're done be sure to check out Jefferies' 21 stock picks for the next six months and beyond.

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: Research and ratings are as of June 7, 2015. Year-to-date returns are based on June 15, 2015 closing prices.

ENDP Chart ENDP data by YCharts

1. Endo International (ENDP)
Market Cap: $16.7 billion
Rating: Buy, B
Beta: 1.18
Year-to-date return: 12.9%

Endo International plc, a specialty healthcare company, focuses on branded and generic pharmaceuticals and devices worldwide. It operates through four segments: U.S. Branded Pharmaceuticals, U.S. Generic Pharmaceuticals, Devices, and International Pharmaceuticals.

TheStreet said: "We rate ENDO INTERNATIONAL PLC (ENDP) 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 robust revenue growth, solid stock price performance, impressive record of earnings per share growth, compelling growth in net income and good cash flow from operations. We feel its 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 goes as follows:

  • ENDP's very impressive revenue growth greatly exceeded the industry average of 2.1%. Since the same quarter one year prior, revenues leaped by 51.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • ENDO INTERNATIONAL PLC 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. We feel that this trend should continue. During the past fiscal year, ENDO INTERNATIONAL PLC continued to lose money by earning -$2.23 versus -$4.67 in the prior year. This year, the market expects an improvement in earnings ($4.53 versus -$2.23).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Pharmaceuticals industry average. The net income increased by 82.7% when compared to the same quarter one year prior, rising from -$436.91 million to -$75.72 million.
  • Net operating cash flow has significantly increased by 66.02% to -$89.81 million when compared to the same quarter last year. In addition, ENDO INTERNATIONAL PLC has also vastly surpassed the industry average cash flow growth rate of -23.98%.

 

 

 

LCI Chart LCI data by YCharts

2. Lannett Co. Inc. (LCI)
Market Cap: $2 billion
Rating: Buy, B
Beta: 1.65
Year-to-date return: 31.2%

Lannett Company, Inc. develops, manufactures, packages, markets, and distributes generic versions of branded pharmaceutical products in the United States. It offers solid oral, extended release, topical, and oral solution finished dosage forms of drugs that address a range of therapeutic area.

TheStreet said: "We rate LANNETT CO INC (LCI) 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 robust revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, reasonable valuation levels and solid stock price performance. 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 goes as follows:

  • The revenue growth came in higher than the industry average of 2.1%. Since the same quarter one year prior, revenues rose by 24.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • LCI's debt-to-equity ratio is very low at 0.00 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 8.74, which clearly demonstrates the ability to cover short-term cash needs.
  • 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 Pharmaceuticals industry and the overall market, LANNETT CO INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.

 

SCLN Chart SCLN data by YCharts

3. SciClone Pharmaceuticals Inc. (SCLN)
Market Cap: $16.2 billion
Rating: Buy, B
Beta: 2.2
Year-to-date return: 5.5%

SciClone Pharmaceuticals, Inc., a specialty pharmaceutical company, provides therapies for oncology, infectious diseases, and cardiovascular disorders in the People's Republic of China, the United States, and Hong Kong.

TheStreet said: "We rate SCICLONE PHARMACEUTICALS INC (SCLN) a BUY. This is driven by multiple 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 revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, attractive valuation levels and compelling growth in net income. 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 goes as follows:

  • The revenue growth came in higher than the industry average of 2.1%. Since the same quarter one year prior, revenues rose by 26.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • SCLN 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 6.82, which clearly demonstrates the ability to cover short-term cash needs.
  • Powered by its strong earnings growth of 112.50% and other important driving factors, this stock has surged by 74.61% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, SCLN should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Pharmaceuticals industry. The net income increased by 116.8% when compared to the same quarter one year prior, rising from $4.13 million to $8.96 million.

 

SCMP Chart SCMP data by YCharts

4. Sucampo Pharmaceuticals Inc. (SCMP)
Market Cap: $714.5 million
Rating: Buy, B
Beta: 1.66
Year-to-date return: 12.9%

Sucampo Pharmaceuticals, Inc., a biopharmaceutical company, focuses on the research and development of proprietary drugs in the Americas, Europe, and Asia.

TheStreet said: "We rate SUCAMPO PHARMACEUTICALS INC (SCMP) a BUY. This is driven by several positive factors, 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, largely solid financial position with reasonable debt levels by most measures, impressive record of earnings per share growth, compelling growth in net income and good cash flow from operations. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."

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

  • The revenue growth greatly exceeded the industry average of 2.1%. Since the same quarter one year prior, revenues rose by 33.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • SCMP's debt-to-equity ratio is very low at 0.27 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 3.81, which clearly demonstrates the ability to cover short-term cash needs.
  • SUCAMPO PHARMACEUTICALS INC 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. We feel that this trend should continue. During the past fiscal year, SUCAMPO PHARMACEUTICALS INC increased its bottom line by earning $0.30 versus $0.16 in the prior year. This year, the market expects an improvement in earnings ($0.65 versus $0.30).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Pharmaceuticals industry. The net income increased by 747.6% when compared to the same quarter one year prior, rising from $0.76 million to $6.41 million.
  • Net operating cash flow has increased to $4.58 million or 28.58% when compared to the same quarter last year. In addition, SUCAMPO PHARMACEUTICALS INC has also vastly surpassed the industry average cash flow growth rate of -23.98%.

 

PBH Chart PBH data by YCharts

5. Prestige Brand Holdings (PBH)
Market Cap: $2.4 billion
Rating: Buy, B+
Beta: 1.96
Year-to-date return: 29.7%

Prestige Brands Holdings, Inc., through its subsidiaries, markets, sells, and distributes over-the-counter (OTC) healthcare and household cleaning products in North America, Australia, and internationally.

TheStreet said: "We rate PRESTIGE BRANDS HOLDINGS (PBH) a BUY. This is driven by several positive factors, 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, growth in earnings per share, good cash flow from operations and expanding profit margins. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity."

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

  • The revenue growth greatly exceeded the industry average of 2.1%. Since the same quarter one year prior, revenues rose by 32.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 50.00% and other important driving factors, this stock has surged by 30.73% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, PBH should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • PRESTIGE BRANDS HOLDINGS 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. We feel that this trend should continue. During the past fiscal year, PRESTIGE BRANDS HOLDINGS increased its bottom line by earning $1.48 versus $1.39 in the prior year. This year, the market expects an improvement in earnings ($2.07 versus $1.48).
  • Net operating cash flow has significantly increased by 69.62% to $52.11 million when compared to the same quarter last year. In addition, PRESTIGE BRANDS HOLDINGS has also vastly surpassed the industry average cash flow growth rate of -23.98%.
  • The gross profit margin for PRESTIGE BRANDS HOLDINGS is rather high; currently it is at 57.92%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, PBH's net profit margin of 12.50% significantly trails the industry average.

 

 

MYL Chart MYL data by YCharts

6. Mylan NV (MYL)
Market Cap: $36 billion
Rating: Buy, B+
Beta: 1.19
Year-to-date return: 3%

Mylan N.V., through its subsidiaries, develops, licenses, manufactures, markets, and distributes generic, branded generic, and specialty pharmaceuticals worldwide.

TheStreet said: "We rate MYLAN NV (MYL) a BUY. This is driven by several positive factors, 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, solid stock price performance, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company has had sub par growth in net income."

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

  • The revenue growth came in higher than the industry average of 2.1%. Since the same quarter one year prior, revenues slightly increased by 9.1%. 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, MYL's share price has jumped by 49.17%, exceeding the performance of the broader market during that same time frame. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
  • The gross profit margin for MYLAN NV is rather high; currently it is at 54.78%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, MYL's net profit margin of 3.02% significantly trails the industry average.
  • MYLAN NV 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. 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, MYLAN NV increased its bottom line by earning $2.34 versus $1.58 in the prior year. This year, the market expects an improvement in earnings ($4.14 versus $2.34).
  • The debt-to-equity ratio is somewhat low, currently at 0.93, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that MYL'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.

 

 

 

 

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