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The latest Medicare bill – soon to be passed – could put a lot of money in certain companies’ pockets. Cramer’s focus this week is telling investors who he thinks those companies will be.
Yesterday he highlighted dialysis provider Fresenius [FMS
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], but for Tuesday’s show one of the stocks Cramer focused on was Allscripts [MDRX
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], the top company for electronic medical records and drug prescriptions. (Read about his other pick, ResMed [RMD
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].)
Cramer was quick to admit that this stock has been a real loser, but there a provisions in the updated Medicare bill that are just the catalysts Allscripts needs. Both the House of Representatives and the Senate want to offer incentives for doctors to switch to e-prescribing systems while at the same time penalizing those who don’t. So Allscripts could very well be in the sweet spot of this transition from paper to computer.
Only 2% of the 1.47 billion new prescriptions and renewals in 2007 were handled electronically, so there’s tremendous potential for growth here. In fact, e-prescriptions are supposed to grow 400% this year. That’s good news for a company that gets 90% of its profits from its software and services division, which handles these electronic ‘scripts.
Allscripts trades at just 18 times next year’s earnings estimates, but has a long-term growth rate of about 24%. When the multiple is equal to or less than the growth rate, that’s Cramer’s definition of cheap.
What’s the stock really worth? Cramer said a multiple of 25 would do. That puts boosts this $12.16 stock to $17.50, a nice 44% jump from Tuesday’s close.
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