The Top Performing Industries of 2012.

by Natalie Pace.

Includes a Medical Technology Stock Report Card.

June 26, 2012

When you think of the top performing industries of 2012, it pays to think of one thing -- information technology. IT is at the core of all company performance today, regardless of industry.

Year to Date Performance by Industry

Source Standard & Poor's

All of the top performing industries listed above are led by the information technology-based companies in their industry. Consumer discretionary performance has been led by companies like Priceline.

Performance of Priceline
Compared to the Dow Jones Industrial Average
and the NASDAQ Composite Index
January 1, 2012 through June 26, 2012

Source: Money.MSN.com. For illustration purposes only.

Telecommunications Services is an industry fueled by the world's most valuable company -- Apple.

Performance of Apple
Compared to the Dow Jones Industrial Average
and the NASDAQ Composite Index
January 1, 2012 through June 26, 2012

Source: Money.MSN.com. For illustration purposes only.

Likewise, the Healthcare industry is being transformed by electronic medical records (EMR) companies like Cerner, which make medical records available to medical professionals with a click.

Performance of Cerner,
Compared to the Dow Jones Industrial Average and the NASDAQ 100
January 1, 2012 through June 26, 2012

Source: Money.MSN.com. For illustration purposes only.

As you can see from the attached Medical Technology Stock Report Card, the EMR industry is booming. While a lot of industries are struggling to keep sales in a weak consumer and business market, doctors and hospitals have government subsidies at hand to put medical records into e-docs, which are easier and faster to access and share. As a result, EMR companies are flush in new sales, with revenue growth of 50-122% over the past two years.

However, Allscripts (symbol: MDRX) and Blackberry (symbol: RIMM) are both grave reminders that investors cannot just pick any company competing in the information technology leg of their industry. Allscripts has lost almost half of its value since the beginning of the year. Research in Motion, the parent company of Blackberry, was worth $32.55/share in August of 2011, but rang in at just $9.05/share today.

Buying individual stocks is like barbecuing burgers. You gotta keep an eye on them -- particularly given the breakneck speed of technological innovation. One company will innovate and patent a cutting-edge breakthrough that will transform the industry overnight, leaving the competition in the dirt. Another might be the leader, but is weak in customer service, which results in client exodus and lawsuits. That has a lot to do with why it is difficult to identify a clear winner in the Medical Technology Stock Report Card.

Cerner has healthy profit margins, at 14.06%, however, Girard Medical Center, a disgruntled former customer, recently aired its complaints of alleged price gouging and breach of contract by the EMR provider to Joel Schectman, a reporter for CIO Journal at WSJ.com. (The lawsuit has been ordered into arbitration by a Kansas judge.) Whether the allegations are true or false, if the story gains traction, the Cerner share price is at risk.

Allscripts shows the greatest revenue growth over the last two years (mainly due to its merger with Eclipsys), and has an executive team that is very strong. Through the merger, Allscripts became partners with Microsoft on EMR. In June of 2011, Allscripts added four strong executives to the team, with experience from Apple, Microsoft, IBM and GE. Just a year later, however, Allscripts missed earnings, lowered their 2012 sales and income guidance, lost their CFO and board chairman and had four other board members walk out in protest, in what was clearly a very bad day for CEO Glen Tullman.

What happened? Bookings and revenue were lower than the prior quarter, missing analyst expectations, prompting an investor sell-off and clearly the anticipation of all that caused a mutiny among the board members that drowned half of those in the room. Allscripts' version of "what happened" is stated in the press release of April 30, 2012, "The board engaged in extensive deliberations regarding the leadership of the company…" Those who supported the CEO (and perhaps the departure of the CFO), stayed on board; those who opposed (and supported the chairman who was the former CEO of Eclipsys) resigned. In the wake of this mess, two board directors have even purchased stock in Allscripts, as another vote of faith in the leadership of the company.

Class action lawsuits are in process, even while Allscripts has regrouped and appears to be recovering. Allscripts has replaced all of the board directors who left. (The board is too heavy in private equity managers now…) So, the recent sell-off could mean Allscripts is in buying range -- that is if the vision of the CEO proves to be efficacious.

However to avoid the volatility that all individual stocks are vulnerable to, you might wish to own PowerShares Dynamic Healthcare Sector Portfolio (symbol PTH) instead. PTH currently includes two EMR companies, McKesson and Cerner, in its holdings.

I highlighted Allscripts on the Hot Stocks List today, and added Cerner, PowerShares Dynamic Healthcare Sector Portfolio and Athena Health to the Stocks to Watch list.

 

About Natalie Pace:
Natalie Pace is the author of You Vs. Wall Street and Put Your Money Where Your Heart Is. She is the founder and CEO of the Women’s Investment Network, LLC (a global financial news, information and education site), where she has been adding a splash of green to Wall Street and transforming lives on Main Street for more than a decade. Natalie is a blogger on HuffingtonPost.com and a repeat guest on national television and radio shows such as Good Morning America, Fox News, CNBC, ABC-TV, Forbes.com, NPR and more. As a strong believer in giving back, she has been instrumental in raising tens of millions for public schools, financial literacy, the arts and underserved women and girls worldwide. Follow her on Facebook.com/NWPace. For more information please visit NataliePace.com.

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