5 Health-Care Stocks: Bargain or Bust?

Every now and then, a company that's enjoying good earnings growth and an upward-trending stock price will get knocked from its high horse. Sometimes, the fall is sudden. Other times, it occurs gradually. But it still happens.

Let's look at five health-care and pharmaceutical stocks that have been the unfortunate recipients of such a downturn. The big question for these stocks is whether the events that made them stumble have created a bargain, or whether they could end up hurting shareholders.

Fools should keep in mind that each of the stocks have the following characteristics in common:

• A three-year compound annual earnings-per-share growth rate of at least 10%.
• A market cap of $5 billion or less.
• A discount to the stock's 52-week high of at least 20%.

Stock	Discount to 52-Week High	Market Cap (in Billions)	EPS Growth*	CAPS Rating (Out of 5)	Why It's Down
WellCare Health Plans (NYSE: WCG)	73%	$1.5	67%	**	Ongoing federal and state investigations.
Advanced Medical Optics (NYSE: EYE)	41%	$1.6	51%	**	Product recall.
NBTY (NYSE: NTY)	43%	$2.1	11%	****	Sales growth occasionally below Wall Street's expectations.
Sciele Pharma (Nasdaq: SCRX)	28%	$0.7	24%	****	FDA delays its decision on a drug candidate.
Immucor (Nasdaq: BLUD)	24%	$2.1	68%	****	FTC investigation.

Data from Motley Fool CAPS and Capital IQ, a division of Standard & Poor's.
*Figures represent three-year compound annual growth rate of EPS, excluding extras, through December 2006, except for Sciele, whose figures represent five-year EPS because of negative EPS three years ago.

Bargains or busts?
Nutritional-supplements maker NBTY has been a victim of great expectations more than anything else. Because the company had reported monthly sales results and preliminary quarterly results on separate occasions, thus requiring Wall Street to lower its expectations for the company's revenue growth, the stock had been beaten down since the spring. But yesterday, NBTY reported fiscal fourth-quarter adjusted EPS that came in almost 30% above the company's year-ago earnings, while revenue rose a healthy but unimpressive 6%. These trends are both positive signals for shareholders and make the stock a bargain at its current price. NBTY is headed in a positive direction, and expectations now stand at more reasonable levels than back in the spring.

Meanwhile, in May, much to the delight of competitors such as Alcon (NYSE: ACL) and Cooper (NYSE: COO), Advanced Medical Optics issued a voluntary recall of its Complete Moisture Plus Multipurpose solution. The fallout was still evident in the company's third-quarter earnings report, which came out last month. On a year-over-year basis, revenue rose by 6%, but it would have been up closer to 18% if not for the recall. This stock now looks like a good deal. The company took one for the team on the recall and with recent acquisition charges, but it should be set to rebound in its ensuing quarters.

Then we have Sciele Pharma, whose shares took a hit on Monday, when the FDA pushed back the PDUFA decision date on Sular, a drug that combats high blood pressure. Although this is indeed a setback, the market's knee-jerk reaction to what will be a two-month delay now makes the stock a bargain. Consider, on the upside, that Sciele recently reported year-over-year EPS growth of 12% on a 33% spike in revenue and also has five other drug candidates in phase 3 clinical trials, as well as an additional candidate currently undergoing FDA review for approval.  

Immucor and WellCare are in more dicey situations than the three companies we've already discussed. Although Immucor has been posting impressive earnings growth, October was a rough month for its shareholders. That's when the Federal Trade Commission told the company it was being investigated regarding three of its previous acquisitions. Possible antitrust-law violations or unfair pricing practices may have surfaced from those transactions, the FTC said. So Immucor is a bust in the short term, but it has operations in place that should allow it to recover in the long run.   

The situation at WellCare is quite a bit more dire than Immucor's. The company just reported impressive top- and bottom-line growth for its third quarter, but the mysterious ongoing investigations by federal and state agencies have left investors holding the bag, to the tune of a 70% drop in the stock price since the probe came to light. Even if the company is found innocent of any wrongdoing, the damage has already been done from a PR standpoint. Prospective new clients will likely think twice before inking a deal with the company. Caveat emptor on this one.

So there you have it. In this group of five stocks, we have a few genuine values, and a few that are best avoided. As always, invest carefully.

For related Foolishness:

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