Despite the Labor Department recording the lowest level of unemployment insurance filings since June last week, suggesting that the labor market is resilient amid a slowing economy, U.S. market indexes fell on Thursday morning as investors continue to fret over the potential for higher Federal Reserve rates.
Kicking off the month of September, the Dow Jones Industrial Average fell 0.4%, while the S&P 500 Index declined 0.5% and the Nasdaq Composite slid 0.7%.
Further, most sectors are down, with health care posting the biggest loss year to date.
Due to these developments, investors may be interested 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 that fact that he was unable to publish it before his passing; therefore, it was lost from public knowledge for a time.
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 new biotech companies that met the criteria as of Sept. 1 were Altimmune Inc. (ALT, Financial), Avidity Biosciences Inc. (RNA, Financial) and TG Therapeutics Inc. (TGTX, Financial).
Altimmune
Altimmune (ALT, Financial) has a $1.05 billion market cap; its shares were trading around $21.30 on Thursday with a price-book ratio of 5.10, a price-sales ratio of 261.05 and an equity-to-asset ratio of 0.93.
The Gaithersburg, Maryland-based clinical-stage biotech company focuses on developing therapeutics that stimulate strong immune responses to prevent and treat infectious diseases.
The GF Value Line suggests the stock is significantly overvalued based on historical ratios, past financial performance and analysts’ future earnings projections.
GuruFocus rated Altimmune’s financial strength 8 out of 10. Despite having a robust Altman Z-Score of 39.57 that implies the company is in good standing, the Sloan ratio is indicative of poor earnings quality.
The company’s profitability did not fare as well, scoring a 1 out of 10 rating on the back of a declining operating margin and negative returns on equity, assets and capital that are underperforming competitors. Altimmune also has a low Piotroski F-Score of 3 out of 9, meaning conditions are in poor shape. Despite recording a decline in revenue per share over the past several years, it still 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.
With 1.54% of its outstanding shares, Jim Simons (Trades, Portfolio)’ Renaissance Technologies is the company’s largest guru shareholder. Steven Cohen (Trades, Portfolio) also owns the stock.
Avidity Biosciences
Avidity Biosciences (RNA, Financial) has a market cap of $1.03 billion; its shares were trading around $20.02 on Thursday with a price-book ratio of 2.75, a price-sales ratio of 116.75 and an equity-to-asset ratio of 0.89.
The biotech company, which is headquartered in San Diego, is developing a new class of RNA therapies called antibody oligonucleotide conjugates to treat a wide range of serious diseases.
According to the price chart, the stock has tumbled nearly 30% since its initial public offering in June of 2020.
Avidity’s financial strength was rated 7 out of 10 by GuruFocus. In addition to a comfortable level of interest coverage, the Altman Z-Score of 13.81 indicates the company is in good standing even though revenue per share has declined over the past 12 months.
While the company has not yet received a profitability rank, the low Piotroski F-Score of 2 warns its operations are in poor shape.
Simons’ firm and Paul Tudor Jones (Trades, Portfolio) both have positions in Avidity currently.
TG Therapeutics
TG Therapeutics (TGTX, Financial) has a $998.77 million market cap; its shares were trading around $6.88 on Thursday with a price-book ratio of 7.74, a price-sales ratio of 132.22 and an equity-to-asset ratio of 0.51.
The New York-based biopharmaceutical company focuses on acquiring, developing and commercializing novel treatments for B-cell diseases.
The stock has declined over 60% year to date.
TG Therapeutics’ financial strength and profitability were both rated 3 out of 10 by GuruFocus. The low Altman Z-Score of -5.83 warns the company could be at risk of bankruptcy.
While the company’s operating margin is expanding, its negative returns are underperforming a majority of industry peers. It also has a Piotroski F-Score of 4, which indicates conditions are typical for a stable company, and a one-star predictability rank.
Of the gurus invested in TG Therapeutics, Lee Ainslie (Trades, Portfolio) has the largest stake with 4.64% of its outstanding shares. The Vanguard Health Care Fund (Trades, Portfolio), Simons’ firm and Caxton Associates (Trades, Portfolio) also have positions in the stock.
