5 Health Care Companies Flying Below the Radar

Finding good investments isn't easy, but sometimes a stock screener can help steer you in the right direction.

In my eternal search for places to invest, I took the new CAPS screener for a test drive. I was looking for companies in the health-care sector with:

• Less than 200 ratings, because the best investments are often the least followed.
• Positive earnings, the holy grail of drug development.
• A four- or five-star rating (the highest) to harness the power of the community and eliminate the dross.

Here's a sampling of what I found:

Source: Motley Fool CAPS.

Specializing in pain
Two of the drugmakers on the list, Endo Pharmaceutics and Pain Therapeutics, are specialty pharmaceutical companies focusing on pain reduction, although they're in different phases of development. Endo has quite a few products, to the point where, like its big-pharma brethren, its patents are being challenged. On the other hand, Pain Therapeutics doesn't have any products -- yet.

How does Pain Therapeutics have positive earnings, then, you ask? It's struck a deal with King Pharmaceuticals (NYSE:KG), and the collaboration payments more than pay for its costs. Pain Therapeutics may not have to wait much longer to start receiving revenue from sales, though; it and King recently submitted their first marketing application to the Food and Drug Administration.

Helping out drug development
The next two on the list aren't drug developers, but rather are in the support side of the industry. This lets you get the drugmaker-sized growth without the risk of drugs failing testing or approval.

Invitrogen is a provider of reagents for scientific researchers. It went on a buying spree a few years ago, adding products that didn't directly compete with its core molecular biology products. After recovering from its binge, Invitrogen seems to be back on the acquisition kick with its recent purchase of Applied Biosystems. I like the smart move Invitrogen made in not touching the brands after acquiring the products. Scientists are a fickle bunch, and by keeping the original names on the labels, researchers have confidence they're getting the same high-quality product.

Charles River Laboratories, on the other hand, helps drug developers later on in the drug-development process. The contract research organization (CRO) is an outsourcing company for preclinical and phase-one trials. As big pharma continues to cut costs, CROs step in and provide these services at a fraction of the price.

A generic spinout
Hospira was spun out by Abbott Labs (NYSE:ABT) in 2004; it sells generic injectable drugs and other hospital related products. While it's had trouble growing its bottom line recently, I like Hospira's prospects.

It's moved into the lucrative business of selling copycat biologics with its version of Johnson & Johnson's (NYSE:JNJ) Eprex. Hospira can't sell the product in the U.S. -- there's no pathway for the approval of follow-on biologics -- but selling it in Europe should give the company a head start once Congress and the FDA get their acts together. I also like the fact that the generic drug industry is consolidating. While I'd never recommend buying a company hoping it'll get bought out, as Barr Pharmaceuticals' (NYSE:BRL) investors can tell you, the surprise upside sure is nice.

Do your homework
These clearly aren't popular companies and you won't be able to find as much news about them in the financial press, which may mean you'll need to do a little more digging for information. But these hidden gems in a recession-resistant industry could be just what the doctor ordered.