“The Absolutely Guaranteed, Locked-In Profit Opportunity of the Century”

by Travis Johnson, Stock Gumshoe | September 3, 2009 11:10 am

I might also call this article, “enough with the gold[1] and commodities teasers already!” I love gold and oil[2] as much as the next guy (well, unless that next guy is Jim Rogers or T. Boone Pickens[3]), but sometimes you just want to look at a “normal” business.

So today, the lucky number we pull out of the hat belongs to Nancy Zambell[4] … Nancy, come on down!

She’s teasing us about a health care stock, which is interesting enough, given the fact that everyone’s on pins and needles waiting to see if Congress actually does anything with medical costs.

And Nancy is an interesting person to follow, partly because the tone of her letters is that of an over-the-top folksy realtor, which I think she still is down in Tennessee … and partly because she had the good fortune (or call it skill or prescience if you like) to launch her Buried Treasure Under $10[5] newsletter this past Winter, at perhaps the best buying opportunity in recent memory for stocks, so the teaser picks of hers that I’ve written about have really done well (so has the market as a whole, to be fair, and I don’t know if she’s beating the market — but everyone loves to see green plus signs in their portfolio regardless of what the market is doing).

So today Nancy’s pitching what she calls the “only guaranteed, locked-in profit opportunity of the century: Finding, training and employing the next generation of health care workers.”

So who are the companies she thinks will profit? The clues are actually pretty thin for this one, but I’ll do my best. This is what she tells us:

“The first is a leader in both domestic and international health care staffing accounting for nearly twice the market share of its closest competitor.

“With the company’s explosive growth in the staffing sector during the last quarter it’s no wonder the stock is up a whopping 65% gains over the past 10 weeks alone and why Wall Street is bidding our share up almost daily.

“As you’ll read in tonight’s issue, the second is a also diversified leader in health care staffing with over 5,000 contracts with nearly all the major hospitals, health care facilities, and pharmaceutical customers in the country.

“This is why the company is up an incredible 46% in the past 8 weeks as well, as Wall Street begin to catch with where the big will be made in the health care sector for years to come.”

And then, a bit further on, she hints at the other details she can share about these guys, which gives us a couple more clues:

“You’ll discover why our two companies together will provide the lion[6]’s share of the medical nurses, surgical nurses, specialty nurses, licensed practical or vocational nurses, advanced-practice nurses, surgical technologists and dialysis technicians throughout the country.

“You’ll learn why these companies’ rock-solid contracts with the country’s top medical facilities, such as The Johns Hopkins Hospital, Massachusetts General Hospital, Vanderbilt University Medical Center, New York University Medical Center, the Cleveland Clinic and Emory University Hospital will provide a recurring source of income for years to come.

“You’ll learn how these companies are piling on the profits with permanent-placement services and how one company’s expansion into the clinical trials business is ripe with double-digit profit potential.”

And

So, as I said, not a lot of clues there — but I think I’ve got your answers, hot out of the Thinkolator:

The first one, the domestic and international leader, is probably AMN Healthcare (AHS) — this is the biggest publicly traded company in the space, and it does have offices in the UK as well as across the Western and Southern U.S.

And according to a recent study[7], their overall market share was about 10%, compared to 5% for the next two largest companies, so that’s a decent match.

And the second one? The third company in terms of market share, Cross Country Healthcare (CCRN).

These two companies actually look remarkably similar on paper — they have almost the same market cap at just under $300 million each, so they’re both certainly small cap companies … and despite continuing nursing shortages, both are unprofitable now but expected to be profitable next year, with CCRN trading at a forward PE of about 38 and AHS closer to 27 … so no one would call them cheap based on those metrics.

Both also carry almost the same amount of debt, and have similar (negative) profit margins and returns on equity … AHS has about 50% higher sales than CCRN, but in most other areas they’re close to being financial doppelgangers.

And yes, they are both big players in temporary staffing for hospitals and other health care clients — CCRN does have more than 5,000 contracts with the hospitals teased, and they have also, as teased, been moving into the clinical trials space, with acquisitions over the past couple years of AKOS Limited and Assent Consulting, both of whom specialize in that sector. I have no idea whether or not that’s going to be a successful long term branch-out for them or not.

It’s possible to claim the return numbers that Zambell does for either of these companies over the past 8-10 weeks, so that’s good enough for me to say I’m reasonably confident that these are her two picks, but there aren’t enough identifying specifics to be absolutely sure.

Just to add one more clue to the fire, she also tells us about some of the institutional holders of these shares:

“Why the Next Big Move Will Be Made in the Next 14 Days!

“As I write this, pension fund, mutual fund and hedge fund managers are already adding to their holdings to grab the next wave of profits.

“I speak, for example, of Barclays Global Investors, the Vanguard Group, JP Morgan and Goldman Sachs, which together own millions of dollars’ worth of shares.

“That’s just on the institutional side.

“On the mutual fund side, top-rated funds such as Columbia Small Cap, iShares, Vanguard Wells Fargo, and others own millions of dollars’ worth of shares as well.”

I have no idea why she thinks that the presence of these institutions as investors in these companies — and the names do show up on their ownership rosters — means that the “next big move will be made in the next 14 days!” … most of those mutual fund are either index funds or value funds, neither of which is likely to look for short-term profits specifically (not that they’d turn them down), and I’d wager that the companies who are not investees of Vanguard, Barclays, JP Morgan or Goldman Sachs are harder to find than those who are — having these banks be on the institutional holders list is like finding a house that’s within a five minute drive of a McDonald’s or a Starbucks … you may find it desirable, but it’s also extremely common.

So … I think we can agree that the nursing shortage and medical staffing shortages are probably real, and probably going to get worse — that’s been the state of the business for decades now, and with an aging[8] population the trend is certainly going that direction.

Does that mean that these staffing companies (or others) will show great profits and see their shares double each year for five years or more, as Nancy thinks might happen? Well, that’s a tougher slog — remember that having great demand for workers means that the workers are likely to demand higher pay, it’s not just that the demand goes to the staffing agency and, ta da!, they get to keep the profit and expand margins. This can be a pretty tough business and, as we see from the fact that the top firm has a 10% market share, it’s probably extremely competitive in many areas of the country.

As I quickly page through information about these two firms, I’m encouraged by the permanent placement services, which are much higher margin according to my quick look at AHS, but which are still a very small part of their business, and I like the long term contracts and potential clinical trials business of CCRN (though that business, too, is very competitive). That’s just my quick reaction, though — if you’re interested in this business or these companies, by all means, let us know what you think with a comment below.

And if you’re one of those who has jumped on Nancy Zambell’s Buried Treasure Under $10[9] service this year, let us know what you think of the newsletter by clicking here to submit a review[10]. Thanks!

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