Top picks 2012: HMS Holdings Corp.
This cost-containment company helps keep fraud and overpayments down while healthcare spending goes up.
By Jim Oberweis, Jr., The Oberweis Report
For a play on healthcare reform in this country, HMS Holdings (HMSY) is a small cap to own. The company provides cost-containment services for state Medicaid programs and other third-party payors by ridding the system of fraud and errors.
Healthcare reform should expand the number of Medicaid-covered lives significantly, from 57 million to over 80 million by 2019, with estimated spending more than doubling over that same time period.
Another result of healthcare reform is the requirement that states establish Medicaid Recovery Audit Contractor (RAC) programs to identify and recover overpayments.
With several RAC contracts under its belt, management expects the company to win at least 50% of these eligible engagements.
The majority of revenues are contingency-based, thus allowing HMS to charge little or no up-front costs (which is quite compelling in this economy), while being motivated to save customers as much money as possible.
Most contracts are multiyear commitments whereby HMS gets paid a percentage of the money saved. HMS grew earnings over 30% in the latest reported quarter, and we expect the company to grow revenues by more than 30% over the next 12 months.
HMS has an impressive track record of entering new and faster-growing markets, with two recent acquisitions positioning it in the lucrative yet nascent market for dependent eligibility services. Here, the company audits client data on a fee-for-service basis to ensure that dependents enrolling for employer-sponsored health care are indeed eligible to receive subsidies.
With many growth-story stocks disappointing investors, this diamond in the rough should be on your radar.
Steven Halpern's TheStockAdvisors.com offers a free daily review of the favorite stock ideas of the nation's top financial newsletter advisors.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
New study finds members of this global elite are stashing an average $600 million each in cash -- 10 times more than a year ago.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.