(CERN) Cerner Corporation: Big Stock Market Winner

July 11th, 2009

Studies show that the average investor does far worse than the Dow Jones Industrial Average or the S&P 500.

It’s not just that they’re not getting good advice. Most of them aren’t even asking the right questions.

As a former money manager, I found my clients spent the majority of their time asking about – and fretting over – what lay just ahead for the economy and the stock market.

Nobody knows the answers to those questions.

So it’s far better to ask, “What companies are likely to thrive – and report enormous profit gains – in the current economic environment?” The answer to that question is where the big money lies.

Let me give you an example.

Cerner Corporation Recommendation

In early February, I recommended Cerner Corp. (Nasdaq: CERN) to subscribers of The Momentum Alert.

As you may recall, the vast majority of stocks were in a freefall at the time, one that wouldn’t end until the market bottomed on March 9.

But that didn’t matter. You see, Cerner is a company with a mission: to take the pen out of doctors’ hands.

Cerner makes systems that automate records in hospital and doctor offices. This is much more efficient than handwritten notes.

It’s also much safer.

Automation reduces errors. Doctors – famous for nearly illegible handwriting – can cause the wrong drug (or the wrong dosage) to be inadvertently dispensed at a hospital or pharmacy. And they can forget to renew old prescriptions.

That’s why Cerner’s scalable Millennium software is already installed in 6,000 hospitals, pharmacies and doctors’ offices. A new federal push for records automation will only increase that footprint.

Despite the severe recession, I pointed out that recent earnings at Cerner were up 24% on a 13% increase in revenue. Plus, the company had a $3.4 billion order backlog.

It didn’t matter that most companies were struggling. Cerner wasn’t.

Cerner Corporation: Health Information Technology

The health information technology leader operates in a recession-resistant industry. And spending on electronic recordkeeping will only grow in the near future.

Since February, Cerner has performed like a champ. The company’s bottom line is still fattening at double-digit rates. And the stock hit a new 52-week high last week.

Look at the chart below. While the Dow is only slightly higher than it was in early February, our shares of Cerner are up over 75% – and I see plenty more upside ahead.

What’s more, we’ve already locked in profits of 146.15%, 197.95% and 669.23% in our Cerner June $40 calls.

Ironically, if we had known that the economic news was about to get worse – and the market was still weeks away from hitting bottom – it might have prevented us from making a fabulous investment.

It’s often a good thing that you don’t know what lies just ahead for the Dow.

In sum, forget about the market and instead focus on companies that are primed for a sharp jump in profits in the months ahead. That’s where you’ll see the biggest gains.

True, the vast majority of publicly traded companies will not report good earnings in the weeks ahead. (Quite the opposite, in fact.)

But so what? You don’t need the vast majority of companies. Restrict your purchases instead to those exceptionally well-managed firms with the best near-term business prospects.

They may not be plentiful but they sure are profitable.

Good investing

Alexander Green

View original at: Investment Advice and Investment Research with a Contrarian Point of View