The other day, I heard from a reader who asked what I thought about a particular company. Now I don't give stock consultations via email anyway, but I hadn't even heard about this company at all. So I looked it up.

It turns out that it's based in California and it's a supplier to pharmacies and clinics in China, and it runs some drugstores there, too. I searched for the company on the Internet and there was no link to its website anywhere near the top of the results. That's not promising; a publicly traded company's website should be easy to find nowadays.

So I looked up the company in Yahoo! Finance and learned that its annual revenue is about $56 million, with net income around $5 million. Its price-to-earnings (P/E) ratio is indeed a low 0.5, but that doesn't necessarily mean it's a bargain. A glance at its balance sheet shows a debt level nearly three times higher than its cash and cash equivalents. (Cash equivalents are things that can be quickly turned into cash.)

Most scary was this: The stock price was $0.08 per share, meaning this is a penny stock. About six years ago, it traded at around $7 per share, so the company has experienced some trouble.

How about this, instead?
The reader was intrigued because he correctly sees lots of people aging and the need for pharmaceuticals and drugstores not drying up any time soon. But here's where his thinking is off: He can invest in lots of other health-care-related companies, ones that offer less risk and more promise. Some with growing dividends, too.

I ran a screen on Motley Fool CAPS for health-care companies rated five stars (out of five). Here are some of the results:


Recent dividend yield

Recent P/E

UnitedHealth (NYSE:UNH)



Becton, Dickinson (NYSE:BDX)



Novartis (NYSE:NVS)



Stryker (NYSE:SYK)



Johnson & Johnson (NYSE:JNJ)



Teva Pharmaceutical (NASDAQ:TEVA)



Quest Diagnostics (NYSE:DGX)



Data: Motley Fool CAPS.

You'd need to dig further into any of these before investing, of course (and you'll find lots of data and opinions from thousands of investors at CAPS), but these certainly seem more promising than a penny stock that has cratered to $0.08 per share. 

Not all small companies are penny-stock traps. If you're interested in the potential of small and growing companies, test-drive our Motley Fool Hidden Gems newsletter for free.

Longtime Fool contributor Selena Maranjian owns shares of Johnson & Johnson and Novartis. Novartis is a Motley Fool Global Gains selection and Johnson & Johnson is an Income Investor pick. UnitedHealth, Stryker, and Quest Diagnostics are Inside Value picks. UnitedHealth is also a Stock Advisor selection. The Fool owns shares of Stryker and UnitedHealth. Try any of our investing newsletters free for 30 days. The Motley Fool is Fools writing for Fools.