In:

• BigBand Networks, Inc. (BBND)
• Fluor Corporation (FLR)
• Net 1 UEPS Technologies, Inc. (UEPS)
• Pervasive Software, Inc. (PVSW)
• Sturm, Ruger & Company, Inc. (RGR)
• Tessera Technologies, Inc. (TSRA)
• Verisk Analytics, Inc. (VRSK)

Out:

• Argan, Inc. (AGX)
• Comfort Systems USA, Inc. (FIX)
• EarthLink, Inc. (ELNK)
• Endo Pharmaceuticals Holdings Inc. (ENDP)
• Great Northern Iron Ore Properties (GNI)
• Lorillard, Inc. (LO)
• MIPS Technologies, Inc. (MIPS)

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It’s important to first understand why these stocks are under pressure. Unless you have been living in a cave in recent months, there are several initiatives to get a government sponsored health care plan under way which could potentially change the way the sector conducts business. Profitability would decrease, a new competitor would be in town (the government), etc.. There are simply too much uncertainty surrounding the sector. And one thing that Wall Street does not like is uncertainty. So in return, we have opportunity.

Magic Formula Screen Used

Market Capitalization: 50 Million

Ranks: Top 30

Date: 9/27/09

Magic Formula Health-care Stocks

Amedisys, Inc. (AMED)- Home health-care. A multir-egional provider of home health care nursing services recently saw its stock tank in early September as it saw 2 executives leave the company simultaneously. Shortly after, the company reaffirmed 2009 guidance of EPS coming in between $4.75 -$4.90. Amedysis has historically traded at a high teens multiple.

3 Magic Formula Bio-techs

If there’s one thing you can bet on, the Magic Formula is never short on bio-techs. Magic formula stocks come and go, but bio-techs are always hold their own. I have always considered bio-techs a lottery ticket and have never paid too much attention to them. Thus, the commentary on them is close to zilch.

Questcor Pharmaceuticals (QCOR)- No comment.

Cytokinetics (CYTK)- Biotech. Cytokinetics only interests me due to the huge run it has had in the past 3 months. It’s stock is up about 80% on results from a Phase II clinical trial. Move on.

Matrixx Initiatives, Inc. (MTXX)- Stock dropped from $19 —-> $5, will. It’s a 55 million dollar market cap with $22 million in cash.  The stock tanked after the FDA ruled its core product causes more harm than it does good.  It doesn’t seem as if the company has anything in the works, move on.

3 Magic Formula Drug Manufacturers

Drug manufacturers generally have a more established portfolio of drugs and is currently developing or looking to acquire drugs from smaller firms such as biotechs. I depend heavily on Morningstar and ValueLine for doing research on these types of companies. The one thing I focus on exclusively is the pipeline and where is it headed. I’m not necessarily looking for a top of the line pipeline as I would have to pay a premium for it, but situations arise where management is taking the proper steps in terms of acquisitions, drug developments, partnerships,etc.. to offset upcoming expiration s on blockbuster drugs. Pfizer (PFE), a magic formula stock, is the perfect example, but you” have to do your own research.

Endo Pharmaceuticals Holdings Inc. (ENDP)- Drug manufacturer. The company focuses exclusively on Pain and has several leading drugs in the area that allows it to control costs and cross sell its products. Most of its patents expire in 2012-2015 but I haven’t come across anything (maybe because I haven’t done anymore research) that demonstrates the company has a plan for the upcoming expiration’s.

Forest Laboratories (FRX)- Drug Manufacturer. Baby Pfizer as I like to call it. Where Pfizer might lose 50% of revenues when Lipitor expires, Forest is looking at an 80% haircut due to Lexapro expiring in 2012. The company is currently a cash cow. Forest is producing about $290 million dollars in free cash flow/ quarter and has $9/share in cash. I wasn’t too fond of the company until it was brought to my attention on the Gurufocus forum. Shortly after, I started digging into the company and I started to get an idea of where management is headed.

Pain Therapeutics, Inc (PTIE)- Drug manufacturer. No comment as I have yet to dig deeper.

Other Magic Formula Health-care Stocks

These stocks appear on other magic formula screens and might merit further research.

AmerisourceBergen Corporation (ABC)

IMS Health’s (RX)

McKesson Corporation (MCK)

Cardinal Health, Inc (CAH)

Eli Lilly and Company (LLY)

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I’ve missed over 9,000 shots in my career. I’ve lost almost 300 games. 26 times I’ve been trusted to take the game-winning shot . . . and missed. I’ve failed over and over and over again in my life. And that is why I succeed.- Michael Jordan

Very few people are born with the ability to successfully pick stocks and outperform the market when they start their investing adventures or careers. There is simply too much information out there these days that it’s tough to separate what works and what doesn’t. It took me a while, and some money, to figure this out. I spent a great deal of money on books, magazine subscriptions, software,etc.. to finally understand what’s  really worth it. Surprisingly, most of the information that is worth reading is available for free.

Thus, I present to you the tools that I use that help me find bargains. These services are available for free or are very affordable and are worth purchasing. They are listed in no particular order.

Stock Screens

Magic Formula Stocks- This screen is the basis of our PRO Membership. There are no fees and is updated on a daily basis. Simply create an account, verify your e-mail, and start screening. Depending on the market cap you are screening for, the screen produces a list of stocks that have a high return on invested capital, a high earnings yield or both.

MSN Deluxe Stock Screen-  The MSN Deluxe Screen requires a download and is among the best free stock screens out there. If you are confused as to which criteria to use, they have some pre-made screens. Also, you can Google a famous investors name and stock screens usually come up. For example, if you Google “Peter Lynch Stock Screen”, the first page is a stock screen based on Peter Lynch’s criteria for stocks as described on One Up On Wall Street

Morningstar Stock Screener-  This is similar to the MSN Deluxe Screen but requires no download. You can select the criteria you want or use one of Morningstar’s Screens. I personally use this screen to screen for non-magic formula stocks as I use Morningstar for my financial news.

Financial News

I used to believe a subscription to the Wall Street Journal and Financial Times were a must, I was wrong. While the Wall Street Journal definitely has great insight into what’s going on in the economy and financial sector, that insight is usually published by other online websites such as Digg.com, Yahoo Finance, Google Finance, etc..

Yahoo Finance/ Google Finance- Both offer similar features such as the day’s headlines, recent company news, a stock chart, message boards, portfolio tracking, etc. It really comes down to personal preference.

Value Investing/Warren Buffett

Despite being a successful long term investing strategy, there are few online sources that dedicate themselves completely to value investing.

Warren Bufett Watch-  CNBC seems to be the preferred channel for Warren Buffett and is constantly being interviewed by them.  Most Warren Buffett tracking sites usually use Warren Buffett Watch as their main Buffett source, so why not cut the middleman and go straight to the source.

Morningstar- Not only do they keep track of Warren Buffett, they constantly hold interviews with value oriented fund managers to get their latest thoughts on the market and their latest stock picks.

Gurufocus.com- This is a site that has grown in the past couple of years. The information they provide is second to none and they have added some real nice features such as a broad market valuation tool that is show below.

Subscriptions

In our PRO membership, we only recommend one premium service, so it would only be fair to recommend it to the rest of the world. We have mentioned this service several times already and for a good reason.

• It’s affordable-  $14.50/mo on an yearly plan or $18.95 monthly. There’s a 14 day free trial!!
• The site layout is user friendly
• Customer support is great
• The features are worth the price
• There research is above average

Below are a couple snapshots of a company snapshot and the premium stock screen using a predefined screen for companies with a terrific 10 year track record.

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