Idea #3: QSII: Profit from Digitizing HealthCare Systems

Simple Investment Idea #3: QSII: Profit from Digitizing HealthCare Systems

• TICKER: QSII
• COMPANY: Quality Systems
  
• SECTOR: HealthCare, Technology
  
• GROWTH THEME: There is a big need to modernize and digitize HealthCare Records and HealthCare Information Systems (IT).
  
• MARKET CAP: $2.51B
  
• FORWARD PE: 31.48
  
• ESTIMATED 5 YEAR GROWTH: 18.27%
  
• FORWARD YIELD: 1.70%
  
• PEG+Y GROWTH: 1.57
  
• PERCENT ABOVE 50 DAY MOVING AVERAGE: 8.3%
  
• PERCENT ABOVE 200 DAY MOVING AVERAGE: 30.1%
  
• RELATED COMPANIES: Cerner (CERN), AllScripts Healthcare Solutions (MDRX)
  

Idea #1: HMSY: Profit From Government Healthcare Waste

Simple Investment Idea #1: HMSY: Profit From Government Healthcare Waste

• TICKER: HMSY
  
• COMPANY: HMS Holdings
  
• SECTOR: Healthcare, Financial Recovery
  
• GROWTH THEME: If you believe that government is wasteful and will continue to be wasteful especially in areas such as Benefits and Medicaid, then you can profit by investing in HMSY, a company which recovers healthcare government waste.
  
• MARKET CAP: $2.26B
  
• Forward PE: 36.75
  
• Estimated 5 Year Growth: 24.75%
  
• Forward Yield: 0%
  
• PEG+Y Growth: 1.48
  
• Percent Above 50 Day Moving Average: 13.7%
  
• Percent Above 200 Day Moving Average: 30.9%
  

Profit from Big Government Healthcare Waste

There is a trend towards Big Government and Big Government Health Care, especially with the traditionally Big Government and Big Health Care Democrats having control of both the Executive and Legislative Branch of the United States.

With so much money being spent on Health care, Government sponsored Health care, there is a niche area to recover much of the waste and inefficiencies.

HMS Holdings (HMSY) is an $800 Million company that does just that.

HMS Holdings is the nation's leader in coordination of benefits and program integrity services for government health care programs. The company’s clients include health and human services programs in more than 40 states, 80 Medicaid managed care plans, the Centers for Medicare and Medicaid Services (CMS), and Veterans Administration facilities. HMS helps ensure that health care claims are paid correctly and by the responsible party. As a result of the company’s services, government health care programs recover over $1 billion annually, and avoid billions of dollars more in erroneous payments.

HMSY has a Forward PE of 32.20, and 5 year estimated growth rate of 26%, for a PEG of around 1.25 (PEG under 1 is a value, over 2, is too expensive).

The Stock chart of HMSY is showing strength (as of January 20, 2009), and the stock is above both the 50 day and 200 day moving average even in a bad market.

On January 13, 2009, HMSY has updated its earnings guidance for fiscal year ending December 2008, and due to better than forecasted business performance for the fourth quarter of 2008, the company is revising its 2008 full year EPS guidance from $0.77 to a range of $0.78 to $0.79.

All of this good news is occurring in a bad market.

The Company's website is www.hmsholdings.com.

Time for Healthcare Information System Stocks?

For some time now, I have been watching Healthcare Information System stocks. All around the world, there is a trend towards digitizing medical and patient information. Healthcare Information System companies have a bright future.

However over the last three years, the stock price of several of the companies I have been watching have gone nowhere.

Over the last 6 days (August 5, 2008 to August 12, 2008), I've noticed good performance from these stocks:

1. SPY (S&P 500 ETF): +0.77%
   
2. IWM (Russell 2000 ETF): +3.27%
   
3. IYH (Healthcare ETF): +1.33%
   
4. QSII (Quality Systems): +24.2%
   
5. MDRX (Allscripts): +26.69%
   
6. CERN (Cerner): +4.11%
   

Over the last 97 Days (March 27, 2008 to August 12, 2008), the performance has been similar:

1. SPY: -2.1%
   
2. IWM: +7.56%
   
3. IYH: +7.06%
   
4. QSII: +30.36%
   
5. MDRX: +73.4%
   
6. CERN: +21.3%
   

The Three Companies, QSII, MDRX, and CERN have been outperforming recently.

Stock Performance Comparison

Quality Systems (QSII)

Market Cap: $1.1 B
Forward PE: 19.57
5 Yr Est Growth: 20%
PEG: 0.98 (less than 1 is low!)

Allscripts (MDRX)

Market Cap: $890 M
Forward PE: 20.95
5 Yr Est Growth: 22.27%
PEG: 0.94

Cerner (CERN)

Market Cap: $3.78 B
Forward PE: 18.09
5 Yr Est Growth: 23.66%
PEG: 0.76



With a long term future, these stocks are the growth stocks of the future, and maybe these stocks will finally break out and do something over the next few years.

Are Large Cap Consumer Staple and Health Care Stocks Really Recession Proof?

A recent poster on this blog commented on the "Anti-Recession Stocks that can survive a US Slowdown" blog post. The poster said:

Well you were most certainly wrong. Too bad folks like you can't get out of the mindset that just because a company is big and been around a while doesn't mean it's stock will do well.

Let's evaluate the stocks chosen in the previous blog entry to see whether or not the stock selection was wrong. The assumption is that large consumer staple and health care stocks tend to survive slowdowns and recessions.

Assumption: Sector Rotation

But first, let us look at an assumption. Let us assume that a portfolio is 100% in stocks, and whether the market goes down or up, the portfolio manager (you) has to remain 100% invested. In this case, we have to either hold the stocks we currently own, or we have to rotate into other stocks.

Many professional money managers have to do the same. They are supposed to maintain a percentage of their fund in equities, and when the market goes down, they could rotate stocks from one sector to another.

The Slowdown/Recession playbook tells us to rotate into large cap consumer staples and health care stocks as a safer investment to ride out the slowdown or recession.

With this assumption in mind, six stocks were selected in the previous blog post that were "anti-recession." Most are large cap, consumer staple or healthcare stocks, except one, Sun Healthcare (SUNH) which is a small cap health care stock.

Performance of the Stocks

From January 7, 2008 (around the time the previous blog entry was written) to today, July 15, 2008, here is the performance of the stocks:

1. SPY (S&P 500 ETF): -13.47%
   
2. PG (Procter and Gamble): -10.27%
   
3. UL (Unilever): -25.97%
   
4. MO (Altria): -11%
   
5. GILD (Gilead): +15.28%
   
6. SUNH (Sun Healthcare): -17.71%
   
7. PEP (Pepsi): -14.2%
   

All of the results above do not include dividends. If you include dividends, the performance of the stocks above would be better.

In addition, instead of choosing SUNH, we had chosen it's competitor, Kindred Healthcare (KND), the return during this period of KND would have been +20.16% instead of SUNH's -17.71%

The Results

Period: January 7, 2008 to July 15, 2008:


Average of the Six Anti-Recession Stocks (no dividends): -10.65%
S&P 500 Performance: -13.47%


The Six "anti-recession" stocks outperformed the market by almost 3%. In this difficult bear market, outperforming the market is a good thing.

Check Performance Now

Biotech has been breaking out

Long Term Trends: Part 5: Consumer Debt

Here are some current trends:

1. Gas and Energy Prices remain expensive and may remain expensive in the future.
2. Food Prices remain high and may remain high in the future.
   
3. Consumer Income may not keep up.
   
4. People can no longer use their houses as ATM machines.
   

With consumers being squeezed, what will the consumer (the U.S. Consumer) do? Will they start saving more or will they continue to spend?

This will depend on many factors, such as culture.

In Japan, there is a greater inclination to save compared to Americans.

However, in the United States, the Savings Rates over the last decade is below 4%, a very low personal savings rate. Even during the recession of 2001, the savings rate remains low.

So Americans (and other cultures) still want to spend despite being squeezed by higher gas, energy, and food prices. This means that in order to continue spending, consumers will need to incur more consumer debt.

Ways to play this

Two obvious plays on increasing consumer debt include:

1. Mastercard (MA)
   
2. Visa (V)

Other plays include:

1. American Express (AXP)
   
2. Portfolio Recovery Associates (PRAA) - Engaged in purchase, collection, and management of portfolios of defaulted consumer receivables.
   

Credit Cards Used to Finance Healthcare Procedures

In the July 2008 edition of Consumer Reports, there is an article that details the increasing use of credit card to finance health care procedures. According to the article, $45 billion is spent today, and it could triple to $150 billion in 2015.

Beware of Rising Charge-Offs

Beware of Rising Charge-Offs. In the first quarter 2008, the Big Three all reported rising charge-offs. For example, the Bank of America charge-off rate increase from 4.73% to 5.19 percent.