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Barron's had a nice article out this weekend on medical health records, specifically Cerner (CERN)... ironically Quality Systems (QSII) is getting a better bounce that Cerner itself. This has probably been the most unrelenting stock in my portfolio with the best chart; it does not do the sexy +10-15% moves, but it grinds out wins day after day, week after week. I am going to cut out almost my entire position here as we now approach mid 30x forward PE.

The lion's share of these shares were bought in the $37-$39 range, and we quickly approach $60. I know valuation seems to mean nothing to market participants, but everywhere I turn things are starting to get extremely rich. I am going to look to buy cheaper valuations with similar growth if the uptrend continues, although in this type of market, valuation protects you very little on the downside as the 'student body left' environment sells everything.

If the stock continues, so be it - I will have gotten my pound of flesh. I am selling all but a handful of shares in the $58s. QSII has an unusually long gap in between earnings reports [Jan 30, 2009: Quality Systems Earnings Solid], and the next one appears in early June; with this sort of valuation going in, I could see the potential of a sell off . Stimulus money is going to be a long tailwind, not a near term explosion.

Quality Systems, Inc. engages in the development and marketing of healthcare information systems in the United States. Its system automates various aspects of medical and dental practices, and networks of practices, such as physician hospital organizations and management service organizations, ambulatory care centers, community health centers, and medical and dental schools. The company offers proprietary electronic medical records software and practice management systems under the NextGen3 product name.


Here is the article from Barron's - obviously you can replace much of the bullish reasoning and apply it to any stock in the sector; we mentioned a handful of names in January [Jan 6, 2009: Analyst Throws Water on "Hope" in Medical IT] [Jan 9: Bookkeeping - Starting Quality Systems]

  • SHARES OF CERNER, A HEALTH-CARE INFORMATION- technology company, have jumped more than 50% since early March. A powerful driver has been the $787 billion federal stimulus package, which includes billions of dollars of incentives to encourage more widespread use of health-care IT -- electronic medical records in particular.
  • "I've been in health-care IT for 17 years, and it's the strongest tailwind I've seen," says Sean Wieland, a senior research analyst at Piper Jaffray.
  • THE IMPETUS FOR THAT UPGRADE was the impact of the American Recovery and Reinvestment Act of 2009. Signed by President Barack Obama in February, the legislation includes $36 billion of incentives to encourage wider use of electronic medical records, and penalizes providers that don't make the effort. The goal is to make the sprawling U.S. health-care system more efficient, less costly -- and safer.
  • Many health-care providers have adopted clinical information technology slowly, due to its considerable expense and to resistance from doctors reluctant to abandon familiar paper records. Electronic billing systems are common. But in hospitals -- Cerner's bread-and-butter customers -- big IT gaps remain, notably for computerized clinical-order entry and electronic medical records.
  • The electronic records are essentially a repository of clinical data, documenting virtually every step of a patient's hospital stay, from test results to vital signs to radiology images. Computerized order entry lets a doctor or nurse request a test or prescription electronically. The aim: improving coordination among the parties that deliver health care, while minimizing mistakes.

[Mar 25, 2009: Stimulus Funds for E-Records Augur Big Windfall for Small Health Firms]

Disclosure: Long Quality Systems in fund; no personal position

Source: Taking Profits in Quality Systems on Cerner Hype