4 buys in electronic medical records

These stocks are poised to benefit as hospitals shift from paper records to electronic systems.

By TheStockAdvisors Oct 17, 2011 11:27AM
By Andy Obermueller, Game-Changing Stocks

One of our favorite game-changing sectors is electronic medical records. Here's a look at our four top picks in this growth market.

The best estimates say that hospitals will need to spend $100,000 per licensed bed to implement these new programs, which render paper files obsolete.

With 950,000 hospital beds in the country, that's $95.5 billion in revenue, and there are only a handful of companies that stand poised to collect it.

Athenahealth (ATHN) builds an online electronic practice management system for doctors and hospitals.

For the past five quarters, revenue has increased, profits have been steady and the company has increased shareholder equity.

I've been a proponent of this company for a long time, and I continue to be. Others have now hitched on to my bandwagon; Morgan Keegan just rated it "outperform."

Quality Systems (QSII) is an athenahealth competitor, though QSII also has a dental division.

Year to date it's more than 30 percentage points ahead of the Nasdaq, and it operates at a gorgeous 18.9% net profit margin.

While the company is in good shape, it is not a "pure" digital medical records play. Investors in this company, who have some very nice gains to show, might consider whether they have ridden the train as far as it can go.

Computer Programs and Systems (CPSI) is up roughly 40% from when I highlighted it at the beginning of the year; the company has a lock on small and mid-size hospitals.

There are a lot of these players and they all need to come into compliance with Medicare's mandate for electronic health records.

While larger medical centers naturally look to companies such as GE Healthcare, smaller players look for smaller providers with expertise on the smaller scale.

And that's what CPSI provides. This is a long-term health IT play, and an outstanding company.

Cerner (CERN) is the leader in electronic medical records, with a top-tier client list and a standard-setting suite of products.

At 40 times earnings, it's twice as richly valued as the Nasdaq overall, which indicates Wall Street expects continued profit growth. It's also one of the companies institutions have loaded up on, which is usually a good sign.

Alone or as an acquisition target, these shares are worth owning for the long-term.

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