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)
  

Profit from Obama's Digital Health Care Initiative

President Elect Obama has an initiative to modernize health care by making all health records standardized and electronic, within five years.

The idea is that the quality of health care will get a big boost, and costs, over the long run, will decline. But this will come at a cost of around $75 billion to $100 billion over ten years according to studies from Harvard, RAND and the Commonwealth Fund.

Can we profit from this?

Some Health Care Information Stocks

1. Athena Health (ATHN): Athena Health provides Internet based business services for physician practices in the United States. "Its service offerings are based on proprietary Internet-based software, database of payer reimbursement process rules and back-office service operations." The company is a $1 Billion company, with a Forward PE of 40, a 5 year estimated growth rate of 32% for a Price Earnings to Growth Rate (PEG) of 1.25 (more than 2 is expensive, less than 1 is a great value).
   
   
2. Quality Systems (QSII) : Quality Systems engages in the development and marketing of health care information systems in the United States. Its system automates various aspects of medical and dental practices, and networks of practices. The company also offers proprietary electronic medical records software and practice management systems. QSII is a $1 Billion company with a Forward PE of 19, 5 year estimated growth of 19% for a reasonable PEG of 1. It even has a forward Yield of 3%
   
   
3. Allscripts (MDRX): Allscripts-Misys Healthcare Solutions, Inc. offers software, services, information, and connectivity solutions that enable physicians and other health care providers to deliver patient safety and clinical outcomes primarily in the United States. It operates in four segments: Professional Solutions, Enterprise Solutions, Health Systems Group, and Medication Services. MDRX is a $1.2 Billion company, with a forward PE of 13.4, a 5 year estimated growth rate of 17% for a bargain PEG of 0.78.
   
   
4. Cerner (CERN): Cerner Corporation provides health care information technology solutions, health care devices, and related services in the Americas, Europe, the Middle East, and the Asia Pacific region. CERN is a $3.1 Billion company, with a forward PE of 15, an estimated 5 year estimated growth rate of 20% for a good PEG of 0.75.
   

Future of Digital Records and Health Care Information Systems

The Future of Digital Records and Health Care Information Systems is bright, even without President Elect Obama's Digital Record initiative.

However, from a short term point of view, there could be challenges. Earlier this month, firm Leerink Swan downgraded ATHN from Outperform to Market Perform. The Analyst Bret Jones said that "Our best guess as to the time line for federal money to work through state grant and loan programs in any material way is at least 12-18 months." Bret Jones also mentioned that the climate for health care IT companies is still very difficult, and investors may be disappointed as they wait for the stimulus package to take effect.

But if we look at the longer term, there is great promise in this area.

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.

Stocks Holding Up Despite a Big Down Dow 387 Day (Aug. 9, 2007)

The Dow Jones went down 387 points today, for a loss of 2.83% to end at 13270.68. But despite this big drop, there are stocks which went up today.

Here are a few of those stocks on my screen that went up despite a big drop in the market.

1. Leucadia (LUK): (Up 6% today)

Leucadia (LUK) is a company that many call a mini Berkshire Hathaway (BRK.B), Warren Buffet's Company. Management is excellent, led by Guru Investor Ian Cumming and Joseph Steinberg. In 1978, Cumming and Steinberg banded together to take control of the company for $100,000 of their own money and $1.2 million from others to grow it to a $10 Billion company today. Both are still active in the company and as of 2007, Mr. Cumming is 65 and Mr. Steinberg is 63 years old.

Leucadia is a holding company that uses a deep value investing approach, buying distressed companies at discount prices, and sell them for profits.

In a shareholder letter, Mr. Cumming and Mr. Steinberg say:

"We tend to be buyers of assets and companies that are troubled or out of favor and as a result are selling substantially below the values which we believe there are. From time to time, we sell parts of these operations when prices in the market reach what we believe to be advantageous levels. While we are not perfect in executing this strategy, we are proud of our long term record…. We believe we are conservative in our accounting practices and policies and that our balance sheet is conservatively stated. To mutilate a hackneyed phrase, we are old dogs and we can't learn new tricks-we believe the ones we learned over the last 30 years continue to work just fine."

The company's stock has gone up recently on good volume and is now very near its all time high. In March 2007, they announced a stock buy-back program.

2. Hansen Natural (HANS): (Up 1.43% today)

Hansen Natural is a $4.3 Billion Drink Company that specializes in the specialty Energy Drink Business. They have a forward PE of 23.44, a 5 year estimated growth rate of 28.59%, for a good PEG of 0.81 (less than 1 is good).

Hansen Natural (HANS) recently announced very good results, and JP Morgan analyst Dara Mohsenian said that catalysts include "improved distribution, contributions from the new Java Monster coffee drink, market share gains, entry into the on-premise market and international growth." Mohsenian also says that strong earnings growth "puts Hansen in a solid position to implement 16-ounce price increases if it chooses, which could be a very significant earnings per share driver" in an Associated Press article.


3. Central European Distribution Corporation (CEDC): (Up 2.51% today)

CEDC is a Polish Vodka producer and importer of other alcoholic and non-alcoholic beverages. The company is a $1.77 Billion company, with a Forward PE of 20.94, a five year estimated growth rate of 17.5% for a reasonable PEG of 1.19.

4. Middleby (MIDD): (Up 5.34% today)

Middleby is a $1.2 Billion company that designs, manufactures and sells cooking equipment and related products. The company has a forward PE of 21.06, a five year estimated growth rate of 18.5%, for a reasonable PEG of 1.13. It recently announced record earnings.

5. Allscripts Healthcare Solutions (MDRX): (Up 4% today)

Allscripts is a $1.44 Billion company that provides clinical software and connectivity and information systems for physicians. It has a forward PE of 32.07, a five year estimated growth rate of 30.44 for a reasonable PEG of 1.05. The company recently announced earnings.

6. Peabody Energy (BTU): (Up 3.17% today)

Peabody Energy is a $12.25 Billion US based Coal Company with a forward PE of 15.06, a five year estimated growth rate of 16.6% for a PEG of 0.91. The Coal sector has been beaten up recently, but a recent US Department of Energy report suggesting coal demand should increase this year is helping stocks in this sector.

7. Sirf Technologies (SIRF): (Up 4.28% today)

Sirf Technologies makes chips for the global positioning market. This $1 Billion company has a forward PE of 15, a five year estimated growth rate of 26.86% for a good PEG of 0.55 (less than 1 is cheap). The company has missed its quarter recently, and the stock is near its 52 week lows.

8. Stanley (SXE): (Up 2.61% today)

Stanley is a $500 Million company that makes information technology systems for the US defense and federal civilian government agencies. Forward PE is 19.11, five year estimated growth of 21.57%, for a good PEG of 0.89. On July 18, 2007, Navy announces a $23.1 Million Deal, where Stanley is one of the four military contractors which won the award.

9. Level 3 Communications (LVLT): (Up 4.87% today)

Level 3 is an $8.23 Billion company that is in the communications business in North America and in Europe. Among many telecom services, Level 3 also is in the fiber optic networking area.


Companies which show strength during big down days are companies you should watch out as they may lead the way when the market does come back.

(Do beware of short squeeze rallies though.)