First January Effect Pick for 2014

Written by GSCR Staff   
Thursday, 02 January 2014 08:10

In Monday’s Goldman Guide we discussed the remarkable January effect in markets.  We are going to try and start 2014 with a bang to really capitalize on this phenomenon.  Our 2013 will be hard to beat as our Market Monitor picks averaged a rise of over 35% in price. (More on the performance in the next issue of the Guide.)

As we mentioned Monday, a number of investors remained concerned about Obamacare.  With that said, there is money to be made in the right healthcare stocks that are innovative and diverse.  Merge Healthcare, Inc. (NASDAQ - MRGE - $2.32) was one of those stocks that had a bad 2012, but as we mentioned in the Guide Monday, we project that some of these losers are primed to turn things around.  MRGE is looking like one of those stocks. 

Merge Healthcare, Inc. develops software solutions that facilitate the sharing of images to create an electronic healthcare experience for patients and physicians worldwide.  It operates in two segments, Merge Healthcare and Merge DNA.  The Company offers iConnect, an image interoperability and connectivity platform that enables hospitals, imaging centers, integrated delivery networks, and health information exchanges to create information exchanges within their environments and with other entities.  The firm also provides clinical and financial information systems that include picture archiving and communication systems (PICS) for general image review and management; specialty solutions for cardiology, orthopaedics, ophthalmology, mammography, and oncology; add-on modules, such as referring physician portals and critical test results reporting; eFilm workstation for general radiology reading; CADstream workstations for specialty reading of magnetic resonance imaging; clinical information systems that provide an electronic record of a medical procedure in various specialties; and software and services for the revenue cycle management of physician practices. 

In addition, the Company provides software development toolkits, technologies, and platforms for original equipment manufacturers, medical device manufacturers, and RIS/PICS or general healthcare IT vendors to assist in development of new products and enhancement of existing products.  Finally, it offers hosted software solutions, including electronic data capture, interactive voice/Web response, and electronic patient reported outcomes software and devices to pharmaceutical companies, contract research organizations, or imaging core labs for the collection, aggregation, analysis, reporting, and overall management of clinical trials information.

The technical analysis is very bullish in the short term and based on the (limited) options contracts that exist, the indication is very bullish when examining the put/call ratio.  Additionally, revenue of nearly $250 million is expected in 2014, putting the FY14E price/revenue multiple at under 1.0x. 

Merge Healthcare is set to capitalize on the expansion of healthcare in 2014.  Look for a price target of $3.25 early in 2Q14.

 

Have a great day and Happy New Year!

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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