3 Winning Hospital Information Systems Stocks

After the White House and House Republican leaders cut that historic debt
ceiling deal earlier this month, health care stocks ran for cover on fears of
deep Medicare cuts. But while hospitals, nursing care companies and health
insurers had a pretty rough few weeks, hospital information systems stocks like
Cerner (NASDAQ: CERN ), McKesson (NYSE: MCK ) and Quality Systems (NASDAQ: QSII
) took smaller hits and are back above their 50-day moving averages. Why the
disparity? To quote Ben Kingsley's character "Cosmo" in the 1990s movie
"Sneakers, "It's all about the information. Hospital IT initiatives like
electronic medical records and nursing or physician information systems that are
integrated into other medication, nutrition and hospital finance systems can
save a lot more money, time and resources than they cost. Crunching the numbers,
the market research firm Technavio last week projected the global HIS market to
grow by 13% per year largely driven by government financial incentives and
regulations to ensure more efficient patient care and fewer errors. For example,
most companies in this sector will benefit from federal incentives for hospitals
and doctors to implement electronic health records. The incentives will run
through 2014. But if they don't take the carrot, there are plenty of big
sticks in the health care reform regulations to drive HIS adoption down the road
to deployment. Here are three winning HIS stocks that warrant a closer look:
Cerner This company has managed to reap incentives of a different kind it will
receive $147 million in Kansas' sales tax money as part of a $414 million
development deal. The project will include two office towers to house 4,000 new
employees, as well as a new professional soccer stadium. CERN set a new 52-week
high of $68.12 on July 29 and, at $67.33, is trading more than 85% above its
52-week low of $36.33 last August. With a market cap of $11.43 billion, the
stock has a price/earnings-to-growth ratio of 1.93, indicating it might be
overvalued. The company's debt position looks good: CERN has total cash of
$682.02 million compared to total debt of $114.69 million. McKesson In June,
MCK's iKnowMed electronic medical records solution was certified by the
Surescripts health information network to exchange prescriptions electronically
and gain real-time access to cancer patients' insurance information, plan
formulary and medication history. MCK set a new 52-week high of $87.32 on May 19
and, at $78.20, is trading more than 35% above its 52-week low last August. With
a market cap of $19.26 billion, McKesson's PEG ratio is 1.06, meaning the
stock is close to fairly valued. Debt position is okay, with total cash of $3.12
billion compared to total debt of $3.99 billion. Quality Systems In mid-August,
QSII acquired CQI Solutions a provider of practice management software to
doctors and dentists. The acquisition, which will be part of Quality's NextGen
Information Systems operation, will help the company rapidly grow its health
care IT business. QSII set a new 52-week high of $93.64 on Aug. 1 and, at
$92.62, is trading more than 65% above its 52-week low of $55.93 last August.
With a market cap of $2.73 billion, Quality has a PEG ratio of 1.6, indicating
the stock could be overvalued. The company has total cash of $125.16 million and
no debt. Bottom Line Cerner, McKesson and Quality are all well-entrenched
competitors with solid fundamentals in a growing segment of the health care
market. CERN and QSII are posting impressive year-over-year quarterly earnings
growth nearly 30% and 57%, respectively. McKesson's -4% year-over-year
quarterly earnings growth is offset by its stake in the increasingly lucrative
specialty drug market, which will hit $100 billion in the next two years. MCK
also went ex-dividend on Tuesday at 20 cents per share a yield of 1.1%. As of
this writing, Susan J. Aluise did not hold a position in any of the stocks named
here.