5 Profitable Small Cap Hospital Stocks

by: Heisenberg Principle

With 2013 less than 3 weeks away, a lot of investors are turning to healthcare related stocks that may benefit from Obamacare's implementation under the new guidelines and rules. As such, I've been looking in different areas such as biotechs and am extremely bullish on a rapidly growing extremely cheap company in particular in the specialized health services industry. Hospitals are expected to benefit the most directly, as there are an estimated 30 million Americans that are uninsured, many of whom will become insured under the new act rules. Utilization rates for hospitals will increase and uncollected receivables will go down from the much larger increase of in paying patients. Hospitals operating in the red should see improvements in their bottom line, and already profitable hospitals should go from doing well to doing great.

With that in mind, I did a screen search for profitable hospital stocks with PE ratios under 25 and market caps under $1 billion. 5 stocks from the result of my search are below sorted from largest to smallest market cap. Use this list only as a mere first step for possible ideas warranting further research:

(1) AmSurg Corp (NASDAQ:AMSG) engages in the development, acquisition, and operation of ambulatory surgery centers [ASC] in partnership with physicians in the United States. It last had PE ratio of 15.46 and a market cap of $920 million. It last reported on October 23. AMSG raised guidance, grew same center sales by 3%, are growing center count, and have 15 more centers under letter of intent. They earned $1.60 per share last year and are expected to earn $2.00 per share this year. AMSG looks like a good value for 2013 and beyond.

(2) Vanguard Health Systems (NYSE:VHS) owns and operates acute care and specialty hospitals, and outpatient facilities in urban and suburban markets in the United States. It last had a PE ratio of 9.97 and a market cap of $885 million. It last reported October 30. One particularly interesting wild card with VHS is their recently announced partnership with AirStrip Technologies. AirStrip develops mobile technology for electronic medial records and has already received FDA 510(k) clearance. Electronic medical records has been a hot button topic in Washington for some time.

(3) University General Health System (UGHS.OB) an integrated multi-specialty health care provider, provides concierge physician- and patient-oriented services in the United States. It last had a PE of 21.42 (w/o one-time items) and a market cap of $134 million. It last reported on November 15. UGHS.OB is experiencing impressive growth across the board. Sales were up 74% YOY, 9 month operating income up 454%, 9 month EBITDA margins up to 35.3% of revenue vs. 18.2% YOY. With that trend, plus Obamacare, UGHS.OB is in great position going into 2013.

(4) SunLink Health Systems (NYSEMKT:SSY) provides healthcare services in the United States. It operates in two segments, Healthcare Facilities and Specialty Pharmacy. It last had a PE of 8.57 and a market cap of 10 million. It last reported on November 15. SSY is particularly interesting as a value vs. its balance sheet. It trades at close to 1/3rd book value and net tangible assets. SSY's chart shows it is range bound the last 6 months, currently in the lower half of that range for a possible good entry.

Chart forSunLink Health Systems Inc. (<a href=

(5) Integrated Healthcare Holdings (OTCPK:IHCH) owns and operates general hospitals and related healthcare facilities in Orange County, California. The company operates 4 hospital facilities that include a 282-bed Western Medical Center in Santa Ana; a 188-bed Western Medical Center in Anaheim; a 178-bed Coastal Communities Hospital in Santa Ana; and a 114-bed Chapman Medical Center in Orange. It last had a PE of 2.44 and a market cap of $22 million. It last reported on November 13. IHCH.OB's financials have been improving dramatically in the last few years, turning the corner to profitability again in 2010 and showing steady earnings each fiscal year since. Their earnings tend to be lumpy quarter to quarter as they have a significant amount of revenue that is received from the state of California for Medi-Cal which is California's version of the Federal Medicaid program. A big part of their California state revenue is from the QAF program which just started its third iteration, and I expect will have many more iterations due to the benefits to the state and the hospitals. An explanation of this program is contained here and here.

Disclosure: I am long OTCPK:IHCH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.