Quality Systems (QSII) is a company that I almost went into business against a few years back but fortunately, I was smart enough not to battle the numerous companies doing EMR or electronic medical records software. Our society is very very advanced but our medical system is a freaking dinosaur. Have you seen your doctors back offices? Yes file folders. What are we doing in our medical industry that we can’t get approvals from a computer system and automatically tell a system that we are allergic without the nurse asking fifty gazillion times. Ok sorry about that but seriously we all know that there has to be change. The advantage of medical software far outweigh the flaws.

Benefit number one is better and more accurate records which can turn to more accurate diagnosis. Two, cost savings in time spend on record management. Three, less change of human error in providing care and treatment. Four, ability to share medical information with other doctors so all issues are known so related information is taken into consideration while the doctor is making a decision. Five, we save some darn trees. The list can go on and on mainly because I did a business plan on this industry but the benefits are undeniable. So undeniable that Congress is in the progress of enacting legislation to force this software onto the medical system. Yes making good record keeping the law. How novel?

There are a few companies that will benefit. There is Cerner (CERN), General Electric (GE), Allscripts Healthcare Solutions Inc. (MDRX), and a tons more. While Cerner and General Electric are much too big to focus on this industry, the two companies that will benefit looks like will be Allscripts and Quality Systems who exclusively develop the software. Both companies were mentioned by Pete Najarian on CNBC’s Fast Money and both companies have a strong foothold although Allscripts is much bigger with a market cap of 1.4B, PE of 85, and revenue of 260M. Quality System is a much better value it seems from the fundmental stand point where it stands slightly below 1B market cap but with 29 PE and a forward PE of only about 20. The price per earnings growth (PEG) is a measly 0.96 with a clean balance sheet of NO DEBT and 70M in cash. The growth rate for both companies is about 16% but with Congress intervention, these stocks will move like crazy especially Quality System that has been beaten down with a 25% short position – any move up will be magnified.

The chart doesn’t look great but you can see that there is a turning point technically as you see there is move in the MACD to the upside on strong volume and the money is starting to flow back. Today it had a good move on strong volume but expect a huge move when there is more news of legislation. You hear it here – Quality Systems.

Here is the description from Reuters:

“Nastech Pharmaceutical Company Inc. is a pharmaceutical company focusing on the development and commercialization of therapeutic products based on both its molecular biology-based drug delivery technology. The Company’s RNA interference (RNAi) therapeutic programs are targeted at both developing and delivering therapeutics using siRNA to down-regulate the expression of certain disease causing proteins that are over-expressed in inflammation, viral respiratory infections and other diseases. The Company’s products under clinical stage include Parathyroid Hormone PTH(1 -34) (Peptide), Calcitonin-salmon (Peptide), PeptideYY(3-36), Insulin, Exenatide and Carbetocin. The products under pre-clinical stage include RNAi directed against influenza virus, RNAi directed against TNF-alpha and undisclosed compounds.”

NASTECH DRUG PIPELINE

Well in english, Nastech has three drugs that it’s working on that all target huge markets.  They are Nastech’s parathyroid hormone PTH(1-34) for osteoporosis, its insulin nasal spray (RNAi compounds)  for diabetes and its PYY treatment for obesity.  Let’s take a look at each.

Osteoporosis is a huge problem that will deabilitate a large baby boomer population of women and we all know women live longer because the wives torture their husbands (just kidding women).  But this compound will target a huge population when approved in a great nasal spray.  Next is diabetes which is one of the fastest growing problems in America and soon the world.  With the insulin nasal spray, people won’t need to go to those dreaded shots.  Next is the PYY treatment for obesity which is also a nasal spray.  Do I sense a trend.  Nastech…nasal.  Yes they specialize in nasal delivery of tons of drugs.  From trials the drug reduced caloric intake by 30%.

Up next seems to be a nasal delivery of an Autism drug and possibly more.  The company claims that the nasal delivery of drugs make it more effective compared to shots so technically many drugs can be delivered better though their technology.  Interesting wouldn’t we say.  This sounds awfully like a sales pitch.  But here is the bad:

In their last earnings report on Wednesday August 8th, Nastech’s second quarter loss widened because of LOWER revenue and increased expenses because of clinical trails and development cost because of their large pipeline.  The company reported a net loss of $12.4 million, or 50 cents per share, compared with $560,000, or 3 cents per share, a year earlier. Revenue fell 57 percent to $4.9 million from $11.4 million.  Analyst were expecting 42 cent loss and $6.1 million.  So they missed pretty badly.

Overall it can be a growth stock if the market finds that nasal delivery is unquestionably better but the stock seems to be falling with the market after a strong rise but support seems at $14 where is now but next support is $13.50 50 day moving average then $12.25 200 day moving average.  Under $13 looks like a good bet for a speculative stock.

Although not profitable yet, the company is growing at a compounded revenue growth of 39% according to an article on Motley Fool which also highlighted this company as a microcap to watch but USAT has grown predominantly through relationships with Coca-Cola (KO), Pepsi Co (PEP), Mastercard (MA), and Sprint (S). While a very small company with a market cap a little above 100 million, there seems to be room to grow with the growing industrialization of the world and movement toward vending machines. Recently USAT announced a deal with Coca-Cola and Mastercard to use their eport system in their vending machines to a total of 7,500 machines in the US while suggesting global growth is just another signature away. The terminals allows Mastercard payments as well as MasterCard PayPass technology.

While that is a bigger deal, USAT supplies laundry mats and hotels payment services as well providing them a stable place to develop into other areas such as hotel vending. The idea is not that USAT provides ePort but the fact that it provides a comprehensive proven payment and monitoring system that is backed by 65 patents allows them to grow with more security from competitors. But the growth areas are numerous. It only has a deal with Mastercard at this time but having one with Visa or another credit issuer will increase it’s reach. Next there is the growth of vending beyond laundry mats and sodas. There are snack foods, gambling, hygenie items, electronics, newspapers, magazines, digital music, digital books, digital movies to pretty much anything. There is also the global growth. While many countries still lack the vending machines, it will eventually come.

SAC Capital Associates, led by billionaire trader Steven Cohen bought $10 million worth of USAT stock, for a 15% interest and Steve Cohen is a major guru to follow who has averaged a staggering 40% return since 1992. That’s why he was the second highestest paid hedge manager grossing over one billion last year. Another big stakeholder is Wellington Management, which owns an 8.1% stake. In a Businessweek article, Luis Martins, an analyst for Taglich Brothers figures sales will rise to $16.2 million in 2008, from $9.8 million in 2007. He sees the stock, now at 7.90, at 11 at yearend. Currently the price is about $9.50.

Another for the possibility of buy out. Why would a company like to buy out USAT? Well they have the technology that is accepted and proven. They have relationships with big vendors. They have the patents and security. They are growing at a fast pace especially now with the first major distribution of their ePort system with Coca-Cola. It’s expanding out into Kiosk as seens by Sony PictureStation Kiosk to print pictures. Kiosk will be a major format for product distribution. Who would be interest? Mastercard or Visa to have a monopoly on vending machines for their payment method. Banks or credit transaction processors. Imagine if every kiosk and vending machine was using USAT. This may take years to play out but USAT seems to on the right track but I would trust Steve Cohen.

After receiving his MBA from Harvard in 1982, Klarman start Baupost with $27 Million in investments but now he has over 5 billion in management.  He got his BA from Cornell.  According to a BusinessWeek profile of him in August of 2006, since then Klarman has returned 6,133% net of fees.  His investing philosophy is centered on value and risk averse techniques which I think is not used enough except for the great Mr. Buffet.  His emphasis is that investors are naive to look for returns which is the positive and never look at the risk.  We all think yes Apple will go to $180 but we never think hey it could go to $80 instead.

“Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor” a book he publish in 1991 increased his notoriety along with his great returns among investors and academia.   Since the book is no longer in print, it actually is a much desired item that goes for between $700 to $1200 on Amazon and Ebay.  The book is such a collector’s items that many library either protect it or has gotten it stolen.  I wish I could get my hands on it.  I may track it down one day while the librarian watches me.

This value investor has in his great portfolio, Syneron Medical Ltd., an Israeli maker of aesthetic medical devices which provide cosmestic laser surgery and other cosmestic procedures.  Last earnings were decent, Syneron earned $10.3 million, or 37 cents per share, up 16 percent from $8.9 million, or 32 cents per share, in the same period a year ago while revenue rose 36 percent to $37.5 million from $27.5 million.  It matched analyst earnings of 37 cents while beating analyst estimates of sales of $33.2 by 13%.  Not too shabby I say.

Also better news is that the company boost expectations of sales for this year to $146 million, up 25 percent from the prior year topping forecast of only 20% revenue growth.  On earnings day, it rose to $25 but now as I write with the market downturn, it’s $23.56 trading at a PE of 16 and forward PE of 12.  No debt.  93 million in cash.  AValue?  Yes.  Growth?

Growth?  Yes.  It’s growth at 20 plus percent and with a Price to Earning’s Growth PEG at 0.94 is awesome.  Recently they got approval for the Vela platform that removes that cellulite from the back of women…well men too..legs.  It’s approved by the U.S. Food and Drug Administration and the European Union.  Is America become more self conscious?  Yes.  Is America become more over weight?  Yes.  Baby boomers want to wear shorts?  Of course, especially if they move to Las Vegas or Arizona.  So Seth Klarman sees a decent trend and bought it for value.  But it’s a growth play too.

They started with hotel bookings then expanded to airline and toured bookings. Last quarter it grew45% from last period. Also it has no debt and it’s profitable. Eventually the build out cost will die down only to leave more profit. It’s moving fast and the Beijing Olympics Games should only spur that one. But right now it’s trading a little high at forward PE of 45 but it’s growth far outweighs it. Look at Amazon!

Ok so the question is can Ctrip.com grow? Yes. Is it growing? Yes. Is there more room to grow? Yes. Is it the best of breed in China at least? Yes. Is it time to buy yet? Well, it’s at about $40 right now and I say near the next support which is $35. So between $38 to $35. But we’ll see. It’s not a sure thing yet.

Goldman, Sachs & Co. and Merrill Lynch & Co. served as joint book runners with Credit Suisse, UBS Investment Bank, William Blair & Company, CIBC World Markets, Wachovia Securities and Thomas Weisel Partners LLC serving as co-managers for the IPO. We should expect some upgrades from all of them soon as usual.

Can the yoga fad rise to the top? Well Cramer compared this stock to Under Armour (UA) and Crocs Inc (CROX) as a type of growth stock that is underestimated but has a strong balance sheet but just high on valuation which will bring out the shorts which keep both Under Armour and Crox sky high in valuation. Cramer insisted that you may have missed the initial ride but you should definitely not doubt this stock if it gets a large short position. I don’t know about the financials yet but soon we’ll see if it grows or not. Apparently it’s global and has over 1,700 employees.

In Latin America, yoga inspired sports wear is actually very popular and there is a niche in the world as a good women’s brand that dominates this category because Nike and Under Armour are still very masculine. Lululemon could be the niche brand of the decade. We’ll see.

About Lululemon Althletica

Lululemon is a yoga-inspired athletic apparel company that creates components for people to live longer, healthier and more fun lives. By producing products that keep people active and stress free, lululemon believes that the world will be a better place. Setting the bar in technical fabrics and functional designs, lululemon works with yogis and athletes in local communities for continuous research and product feedback. lululemon athletica was founded in Vancouver, British Columbia in 1998 by Chip Wilson, founder of Westbeach Sports, a skate/surf/snowboard clothing company. lululemon athletica is extending into new communities across North America and throughout the world. For more information, visit www.lululemon.com.

There are possible problems such as the possibility of a global slow down but that goes with most companies.  The possibility of slower domestic growth is another one however the global portion should more than make up for it.   Jim Cramer on CNBC says the sell off was “overdone” but the stock closed from it’s lows of the day.

From the chart, you can see that Mastercard technically has support at about $140 which it hit today and bounced right back up.  If it breaks that the next support is at $118 or so but it did bounce today and it may see the low $140s or high $130s before bouncing back up.  It has a 16% short ratio which may build with the stock moving down and any catalyst may move it.  The company has about $2 billion in cash at a $20 billion valuation – with a forward PE of 25 and a growth rate of 15%-20%, Mastercard still seems like a buy with the global transition from cash to credit payments.

VM Ware’s IPO date has been set at August 18th.   The initial public offering of 33 million shares in the virtualization software maker will come down Aug. 14 at a range of $23 to $25 each, according to the company but Intel and Cisco had purchases interest in VM Ware before IPO expecting greater upside.  Cisco invested $150 Million for about 1.6% of VMware giving a valuation of $9.4 Billion wheras Intel which invested $218.5 million a few weeks back for a valuation of $8.8 billion.  Under these circumstances we should expect VM Ware to be worth close to $10 billion.

Let’s do the numbers.  They are selling 33 million shares at the top end of $25 to raise $825 million which is about 6% of all outstanding interest (100% – 90% (EMC) – 1.6% (Cisco) – 2.5% (Intel) = 6%).  This comes out to be a valuation of $13.75 billion which could rise if the IPO price goes above the high end of $25 which almost every analyst on earth expects.

So if EMC as of today’s close is worth about $38 billion minus a $12.4 billion stake in VM Ware is worth $24 billion by itself minus $1 billion in cash = $23 billion.  It’s expect to have $13 billion in revenue minus about up to $2 billion for VM Ware and that’s at least $11 billion in revenue with a good profit margin.  So trading at only 2 times cash with a 15% growth rate would suggest that EMC is undervalued.

Cramer put his targets at $30 and up.  Not only is he pitching this, he has owns it for his charitable trust as of last week!  We’ll see if Cramer is right.

What is do VM Ware do?  What is Virtualization?

Virtualization software carves up server processing power into individual slices. Each slice handles a different task, such as payroll processing or email. This lets a single server handle functions that were previously handled by many.

Virtualization is also used for data storage. It lets multiple devices on computer networks find and use idle capacity on the same storage appliance. This limits the number of storage units that companies must purchase, and it cuts down on the staff required to operate them.