This year has been a good one for stocks. All the major
indices are up more than 20%, with the blue-chip Dow Jones
actually serving as the laggard with a year-to-date gain of
almost 23%. The technology-heavy Nasdaq has outperformed this
year, gaining 34% so far in 2013.
Of course that 34% increase doesn't apply to everything in the
NASDAQ 100. Some stocks, like Tesla (
) and Netflix (
) have posted gains of 300%, reminding a lot of people of the
late 1990s tech boom. The other side of that coin is that
traditional tech giants like Apple (
) and Intel (
) have posted relatively weak gains this year, adding 6% and 15%
I'm not interested in chasing the high-fliers or trying to find
value in the laggards. Those can both be fine strategies, but in
a year like this, matching the broad market is nothing to sneeze
at an anything above that should be considered excellent by any
One company I'd like to highlight is Cerner Corp. (
). It's not a household name, but the stock is up 46% so far this
year and while it isn't in the red-hot social media or solar
sectors, it is in the underappreciated, but critically important
healthcare information technology business.
The company has posted an average earnings growth rate of
22.89% over the last five years. Analysts project that the trend
will continue, with current estimates pointing toward a 17.87%
average growth rate over the next five years.
The company isn't particularly new, nor is it small. It was
founded in 1979 and had revenues of $2.67 billion in 2012. The
reason it is largely unheard of is that healthcare IT isn't
marketed to consumers. Cerner's services and systems are sold to
hospitals and doctors' offices that are still working to move
away from paper records.
In the recent past, the company benefitted from parts of the
American Recovery and Reinvestment Act, commonly known as the
stimulus, which offered incentives to medical practices to
upgrade their IT systems. The law provides $35 billion in
total funds starting in 2011 and to be paid out over four years.
Individual healthcare providers can get up to $44,000 over the
four-year period, while hospitals can qualify for up to $4
million. Meanwhile, healthcare organizations that fail to adopt
new healthcare IT standards will start to face penalties starting
The Affordable Care Act, also known as Obamacare, is another
positive for Cerner. In addition to record-keeping
requirements, the law's focus on costs means that software that
can help treat patients in the most efficient and cost effective
way possible is going to be in high demand.
Like other IT companies, Cerner has followed the lead of
companies like IBM (IBM) in that it isn't just selling hardware.
It is a full-service operation that not only sells hardware, but
also software and provides the service to keep everything
running. Sales of new systems last year will lead to steady
streams of service revenue in the years to come.
Traders looking to take advantage of Cerner's strength could
consider a January 47.50/52.50 bull-put credit spread for a
30-cent credit. That's a 6.38% return or 58.24% on an annualized
basis (for comparison purposes only). This position will return a
full profit so long as the stock closes above $52.50 on January
18, giving it 8.5% downside protection.