Heading into August, the major market indexes had mixed performances on Tuesday as earnings season continues and a fresh batch of economic data was released.
The Dow Jones Industrial Average rose 83 points, or 0.20%, while the S&P 500 Index fell around 0.21% and the Nasdaq Composite pulled back 0.30%.
All individual sectors were down for the day as well. Health care had the second-worst performance with a 0.95% loss, while it has recorded the largest decline year to date at 4.20%.
Due to these developments, investors may be interested in potential opportunities in health care companies that qualify for Benjamin Graham’s Lost Formula screen, a Premium GuruFocus feature.
Prior to his death in 1976, the renowned investor and author of "Security Analysis" and "The Intelligent Investor" developed a refined formula that screened for companies with a price-earnings ratio of less than 10 and an equity-to-asset ratio of at least 0.5. The formula got its name from the fact he was unable to publish it before his passing; therefore, it was lost from public knowledge for a time. Since Graham also prioritized a minimum interest coverage of 5 with the companies he invested in, that element was included in the criteria as well.
A backtest of the strategy from 1926 to 1976 showed it would have outperformed the Dow benchmark by approximately twice as much.
The screener found health care companies that met the criteria as of Aug. 1 were Pfizer Inc. (PFE, Financial), Moderna Inc. (MRNA, Financial) and Dynavax Technologies Corp. (DVAX, Financial).
Pfizer
Pfizer (PFE, Financial) has a $200.75 billion market cap; its shares were trading around $35.56 on Tuesday with a price-earnings ratio of 3.38, a price-book ratio of 1.99, a price-sales ratio of 2.17 and an equity-to-asset ratio of 0.52.
Founded in 1849, the New York-based pharmaceutical company is known for its Covid-19 vaccine along with a number of other drugs, including the Prevnar 13 pneumococcal vaccine, cancer drug Ibrance and cardiovascular treatment Eliquis.
The GF Value Line suggests the stock is significantly undervalued currently based on its historical ratios, past financial performance and analysts’ future earnings estimates.
At 86 out of 100, the GF Score indicates the company has good outperformance potential on the back of high ratings for financial strength, profitability, growth and value. The momentum rank, however, is low.
The company also has a moderate Piotroski F-Score of 6 out of 9, meaning its conditions are typical for a stable company. However, the Altman Z-Score of 3.35 implies it is in good standing. It also has a predictability rank of one out of five stars. According to GuruFocus research, companies with this rank return an average of 1.1% annually over a 10-year period.
Of the gurus invested in Pfizer, the Vanguard Health Care Fund (Trades, Portfolio) has the largest position with 0.89% of its outstanding shares. Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Diamond Hill Capital (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), Richard Pzena (Trades, Portfolio), Charles Brandes (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Ray Dalio (Trades, Portfolio)’s Bridgewater Associates and several other gurus also have large holdings.
Moderna
Moderna (MRNA, Financial) has a market cap of $43.52 billion; its shares were trading around $114.11 on Tuesday with a price-earnings ratio of 9.87, a price-book ratio of 2.33, a price-sales ratio of 3.18 and an equity-to-asset ratio of 0.78.
The pharmaceutical company, which is headquartered in Cambridge, Massachusetts, develops vaccines based on RNA therapeutics. Its most well-known treatments include its Covid-19 vaccine as well as a flu and RSV vaccines.
According to the GF Value Line, the stock is significantly undervalued currently.
The GF Score of 75, however, implies the company is likely to have average performance going forward. While it received high growth, financial strength and momentum ratings, the profitability rank is more moderate and the value grade is low.
The company is also supported by a high Altman Z-Score of 7.92, indicating it is in good standing. The Piotroski F-Score of 5 is more moderate.
With an 11.99% stake, Baillie Gifford (Trades, Portfolio) is the company’s largest guru shareholder. Other top guru investors of Moderna include Philippe Laffont (Trades, Portfolio), Vanguard, Steve Mandel (Trades, Portfolio), the Parnassus Value Equity Fund (Trades, Portfolio), Simons’ firm, Jeremy Grantham (Trades, Portfolio), Catherine Wood (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Stanley Druckenmiller (Trades, Portfolio).
Dynavax Technologies
Dynavax Technologies (DVAX, Financial) has a $1.75 billion market cap; its shares were trading around $13.61 on Tuesday with a price-earnings ratio of 8.72, a price-book ratio of 3.10, a price-sales ratio of 3.13 and an equity-to-asset ratio of 0.58.
Established in 1996, the Emeryville, California-based commercial-stage biotech company develops innovative vaccines to help prevent infectious diseases.
Based on the GF Value Line, the stock, while undervalued, appears to be a possible value trap. As such, potential investors should do thorough research before making a decision.
Supported by high ratings for four of the criteria and a more moderate profitability rank, the GF Score of 81 means the company has good outperformance potential.
Dynavax also has a solid Altman Z-Score of 3.71 and a high Piotroski F-Score of 7, indicating its operations are healthy. The company also has a one-star predictability rank.
Fisher is the company’s largest guru shareholder with a 3.09% stake. Dynavax is also being held by Simons’ firm, Chuck Royce (Trades, Portfolio), Greenblatt and John Hussman (Trades, Portfolio).
