A Great Healthcare Stock For The Next Big Market Move

Dec.20.11 | About: HMS Holdings (HMSY)

By Timothy Lutts

I’m tired of the word “choppy.” I’m tired of reading about choppy markets, stocks that chopped up and down, and sectors that are chopping around. Don’t writers know any other words?

More importantly, don’t you think that when there’s such unanimity of opinion about the market, it’s ripe for a change? I think so, and I think the market’s next major move will be up.

My reasons are these:

One, the market’s been down a pretty long time, and the selling pressures, which peaked in August, have been easing. Institutions are clearly using the big dips to accumulate shares at reasonable prices. And the institutions love these dips. They know value, so it’s to their benefit to extend the bottoming phase so they can continue to accumulate shares.

Two, individual investors feel terrible about investing here. In fact, many tell me so, using words like these:

“I suspect that the market is going into a rat hole for a long time.”

“I fail to see the logic of buying … the European debt crisis … is years from solution!”

As a result, they’re inordinately focused on safety, which tells us that before long, the market will reward those brave souls who are courageous enough -- and independent-thinking enough -- to take on risk.

Three, progress continues to be made in numerous industries, from energy to pharmaceutical to technology. And the best stocks in these industries offer brave investors a chance to make profits now.

One of the most interesting to me is a company named Health Management Systems (NASDAQ:HMSY), a boring name but an accurate one, for a company that gets paid for (successfully) keeping health care costs under control. Mike Cintolo, editor of Cabot Top Ten Trader, recently recommended the company. Here’s what he said:

The issue of cost containment in the U.S. medical industry is a pressing one, and companies like HMS Holdings are on the front lines in the battle. The company specializes in cost containment, revenue recovery, reimbursements and benefits coordination, contracting with state and national government agencies and insurance companies to manage third-party liability claims, reconcile state regulations with national Medicare and Medicaid requirements and keep a watch on potential fraud or mismanagement.

The company’s Q3 earnings report points toward a “national focus on improper payments” as a major source of future growth, and investors clearly agree. When HMS Holdings acquired Health Data Insights (HDI) in November, it strengthened the combined company’s position as a recovery audit contractor in the quest for the integrity of claims in both Medicare and Medicaid.

Revenue growth has been steady, with 26% growth in 2008, 24% in 2009 and 32% in 2010. As the company’s Q3 earnings summary states, “Medicaid grows regardless of political environment,” and the more efforts are made to reform the system, the better HMS Holding will thrive.”

HMSY has been in a long-term uptrend for years, and in recent weeks, it’s been building a base between 30 and 31. Mike suggested getting on board after any dip of one point, and that still seems like good advice to me.

Disclosure: The author does not have a position in the stock.