The Supreme Court decision to uphold the Affordable Care Act will have a wide ranging effect on the healthcare industry. Hospitals, health insurers, drug-makers, physicians and technology companies will be affected. Below listed are the industries and selected individual related companies.

1. Hospitals will benefit — 16 to 20 million patients gain insurance coverage for payment. Fewer losses from treating the uninsured since the legislation mandates that everyone buy healthcare insurance or pay a penalty.
• Since the Supreme Court decision on June 28th, 2012, the Hospital Industry gains approximately 5% with many stocks currently consolidating.

Hospital Name Symbol
Tenet Healthcare (THC)
HCA Holdings (HCA)
Health Management Associates (HMA)
Community Health Systems (CYH)
Vanguard Health Systems (VHS)
Lifepoint Hospital Inc. (LPNT)

2. Individual insurance plans or (Health Care Plans) will be hurt by burdensome rules placed on these companies. (Companies will have to accept all patients and spend at least 80% of their collected premiums on patient care).
• The Health Care Plans industry corrected sharply near 10% since June 28th, 2012. Aetna (AET) and Humana (HUM) missed estimates in the 1st quarter.

Insurance Company (Symbol)
Aetna (AET)
Cigna (CI)
Coventry Healthcare (CVH)
Wealthpoint (WLP)
UnitedHealth Group, Inc (UNH)
Humana Inc. (HUM)
Healthnet Inc. (HNT)
Wellcare Healthcare (WCG)

3. Medical Device Manufacturers may see a decrease in profits. The law affirms the imposition of a 2.3% excise tax on all medical devices and expanded reporting of payments to physicians and institutional providers as mandated by the Sunshine Act.
• Many stocks in the Medical Device Manufacturing Industry remain fairly stable due to relatively high dividends.

Company (Symbol)
Boston Scientific (BSX)
Medtronic (MDT)
Hologic Inc (HOLX)
St. Jude Medical (STJ)
Stryker Corp. (SYK)
Zimmer Holdings Inc (ZMH)

4. Pharmaceutical Manufacturers and biologics companies will need to address sweeping changes to Average Manufacturer Price (AMP) and Best Price (BP); i.e. (gov’t dictates prices?).
• Pharmaceutical companies remain fairly stable due to relatively high dividends.

Company (Symbol)
Merck & Co. Inc (MRK)
Pfizer Inc (PFE)
Bristol-Myers Squibb Co. (BMY)
Eli Lilly & Co. (LLY)
Sanofi (SNY)
GlaxoSmithKline Plc (GSK)
Novatis (NVS)

5. Information Technology companies — selected EHR companies will benefit from the implementation and adoption of digital patient records.
• Selected Healthcare Information Services companies will benefit from the $18 billion subsidy to help physicians and hospitals purchase Electronic Health Records(EHR).

Company (Symbol)
Cerner Inc (CERN)
HMS Holdings (HMSY)
AthenaHealth, Inc (ATHN)
Qualily Systems Inc (QSII)
Allscript Healthcare Solutions Inc (MDRX)
Computer Programs and Systems Inc (CPSI)

6. Long-term care, skilled-nursing facility, home healthcare, rehab centers may experience negative affects from Medicare rate cuts.

Company (Symbol)
Brookdale Senior Living Inc (BKD)
Sunrise Senior Living Inc (SRZ)
Kindred Healthcare Inc (KND)
Sun Healthcare Group, Inc (SUNH)

7. Temporary Staffing Companies may also benefit as companies hire temporary employees to reduce expenses.
• The Temporary Staffing Companies may benefit at a later dates; For the short-term, the major headwind for these companies is high employment rate.

Staffing Company (Symbol)
Manpower (MAN)
Kelly Services (KELYA)
Korn/Ferry Intl. (KFY)
Robert Half Intl. (RHI)

We will provide more in-depth research for each company listed above at a later date. For each company, we will examine in detail of each company’s fundamentals, technical analysis and catalysts to determine the appropriate buy/sell point. A clear understanding of the impact of the Affordable Care Act will provide the investor an edge when considering stocks in the healthcare sector.

Investment houses espouse an investor’s portfolio should be fully invested at all times and allocated across multiple asset classes; domestic stocks (large-cap, mid-cap, small-cap), foreign, commodities, emerging markets, bonds, etc…

Below is an excerpt from one of the biggest investment companies,

“The goal of diversification is not to boost performance but to help manage risk. Diversification doesn’t ensure a profit or guarantee against a loss. And while it won’t maximize returns in up markets—in fact it will likely reduce them—it can help you ride out swings in the market, because as one part of your portfolio struggles, another may be performing well. That can be very important, particularly for people in or nearing retirement who depend on their portfolios for income.”

From 2000 to present, major market index returns are nearly flat. During the market crash in 2008, investments of all asset classes suffered major losses; stock funds, corporate-bond funds, real-estate stocks, commodities. One important measure of the broad market index is the S&P500. The S&P500 declined by nearly 56% in 2008. The simple math is that for an investor to break even from a 50% decline, he would need to gain 100%. A chart of the S&P500 (courtesy from Doug Short) depicts the timeframe from March 24, 2000 to the present. It shows $1,000 invested in the S&P500 would be diminished in value to $812 as of 1/31/2012 when adjusted for inflation.

An unspoken secret of investment company ‘s is that fees are collected by the investment of assets. As an economy of scale, the more assets under management actively invested, the more fees collected. A managed account typically charges somewhere between 1%-to-3% per account. A $1,000,000.00 account generates $10,000-$30,000 in revenue. Multiplied by many accounts one can see that this fee is substantial. This fee is charged regardless of whether an investor makes or loses money in any given quarter or annually. During the 2008 market collapse, managed fees from one ‘s portfolio would further decrease the principal balance of the account.

Some major brokerage institutions during the recent 2008 housing debacle, were trading against the customers whom they were advising. One large institution was accused of overcharging for two sets of mortgage-backed securities that it sold to a hedge fund client. This institution was accused of lying about the securities’ expected performance; not providing timely, accurate information about the securities’ true value; and failing to disclose that the firm was actively betting against the securities at the time of the transaction

Based on the past decade, we have learned that world stock markets become more inter-related and that changes in one country/market will have a ripple effect across all other markets. Additionally, the rise of ETFs (Exchange Traded Funds) that bundle stocks together coupled with the depedence on leverage forces fund managers to liquidate positions quickly to cover losses. Institutions have also increased usage of High Frequency Trading contributing to stock market volatility.

An example of this market dependency is the 2008 US housing crisis. During this period, the U.S. housing market not only affected the US market, but it also brought down major institutions around the world. Case in point, before the 2008 collapse and the general financial crisis, RBS Group was very briefly the largest bank in the world and for some time was the second largest bank in the UK and Europe (fifth in stock market value), and fifth largest in the world by market capitalisation. Subsequently, with a slumping share price and major loss of confidence, the bank fell sharply in the rankings and had to be rescued by the UK government. Lehman Brothers Holdings Inc. , the fourth largest investment bank in the USA (behind Goldman Sachs, Morgan Stanley, and Merrill Lynch) declared bankrupcy in the fall of 2008.

Since 2000 (aka, the lost decade), the 2000 – 2002 dot bomb, the 2008 Financial Crisis, Euro-quake, the Flash Crash, Flash Trading in general, Dark Pools; the average investor may be left with the feeling the game is rigged. As a result, investors have withdrawn a record amount of money from mutual funds as the market lurched from one event to another. Based on a recent note from the venerable Investment Company Institute, a staggering $75 billion has been withdrawn from equity mutual funds.

Recommendations:
What ‘s an investor to do in this time of uncertainty? As one of the greatest investors of our generation Warren Buffet stresses “Capital Preservation”. He is famous for his 2-rules; Rule No. 1 “Protect Your Capital” and Rule no. 2 “Go Back and See Rule no.1”.

We recommend one should invest based on the current economic cycle and NOT be fully-invested at all times as preached by the investment companies. By investing based on the business cycle, investors are likely able to produce better average returns. This approach also helps long-term investors to identify when to buy or sell. Click here for the link to “Sectors and the Business Cycle: A Primer” by Bob Johnson for additional details.

In times of major economic uncertainty, “capital preservation” is key to one ‘s portfolio and cash or short-term money markets are best to preserve capital while waiting for better opportunities.

As a follow up to Mobile Payment – Near Field Communications analysis, this article updates the latest events for the two companies mentioned; Verifone (PAY) and NXP Semiconducdor (NXPI).

VeriFone (PAY) (via Yahoo)
VeriFone Systems, Inc. designs, markets, and services electronic payment solutions that enable secure electronic payments among consumers, merchants, and financial institutions worldwide. The company provides countertop electronic payment systems that accept magnetic, smart card, and contactless/radio frequency identification cards; and support credit, debit, check, electronic benefits transfer, and various pre-paid products, as well as offers wireless system solutions.

Reader can access the full Q3 2011 earnings transcript PAY — Q3 Transcript

On Sept 6 2011, VeriFone (PAY) announced Q3 2011 earnings (via Reuter – Q3 2011 earnings release – Sept 6 2011):
* Q3 adj EPS $0.49 vs est $0.46
* Q3 rev up 21 pct
* Sees Q4 adj EPS $0.49-$0.50 vs est $0.49
* Sees Q4 rev $395-$400 mln vs est $395.9 mln
• VeriFone, whose customers are primarily financial institutions, payment processors, petroleum companies and retailers, is seeing growing demand for these mobile payment technologies in the United Kingdom ahead of the 2012 Olympics.
• “In London we have now signed nearly 6000 taxis to five-year processing agreements. UK retailers continue to embrace contactless systems,” Chief Executive Douglas Bergeron said on a conference call with analysts.
• The company continues to work with Google Inc to roll out the Google Wallet mobile payment service, which uses wireless NFC technology on mobile handsets.
• “The next big phase of the Google rollout is currently planned for the end of the month where we go from hundreds of locations to tens of thousands of locations,” CEO Bergeron said on the call.
• Verifone is also working with ISIS — an NFC-based mobile payment joint venture between AT&T , T-Mobile and Verizon Wireless; and PayPal Inc bring mobile payments to point-of-sale terminals in 2012.
• It has also won a $6.9 million contract with the Metropolitan Transportation Authority of New York City to depoly 1000 of its TransitPAY systems on buses which allow NFC-enabled smartphone-based payments.
• If initial rollouts lead to widescale deployment across the industry, the company’s revenue would grow by $100-$150 million in the U.S. and internationally.
Guidance:
• The company expects fourth-quarter adjusted earnings of 49-50 cents per share on sales of $395-$400 million. Analysts were expecting a fourth-quarter profit of 49 cents, on revenue of $395.9 million, according to Thomson Reuters I/B/E/S.
• Growth in North America will likely remain flat in the fourth quarter and will pick up next year, VeriFone said. It expects higher growth from Europe – especially from UK, France and Germany – and from emerging markets.
• Verifone raised its full-year adjusted profit outlook to $1.88-$1.89 a share on sales of $1.289-$1.29 billion, from its prior forecast of an adjusted profit of $1.80-$1.83 a share on sales of $1.17-$1.18 billion.

Technical Analysis:
• Expect PAY to encounter the 50-SMA resistance at around $38 range. The stock displayed a “death-cross” figure back in mid-July 2011 around $43. Looking forward, Mid-October is a better month for PAY.

NXP Semiconductor (NXPI) — As profile inYahoo –
NXP Semiconductors N.V., through its subsidiary NXP B.V., provides mixed signal solutions and semiconductor components primarily in Japan, Europe, South Korea, Rest of Asia Pacific, and the Americas. It offers small signal, power, and integrated discretes; and amplifiers, bipolar transistors, data converters, diodes, rectifiers, microcontrollers, sensors, and thyristors. The company’s products are used principally in automotive, identification, mobile, consumer, computing, wireless infrastructure, lighting, and industrial applications. It also develops audio and video multimedia software solutions for mobile phones. The company, formerly known as KASLION Acquisition B.V, was founded in 2006 and is headquartered in Eindhoven, the Netherlands.
News Updates:
• Marketwire -08/30/11 EINDHOVEN, NETHERLANDS- NXP Semiconductors N.V. (NASDAQ: NXPI – News) today announced that Turkcell (NYSE: TKC – News) (ISE: TCELL), the leading communications and technology company in Turkey, has selected the PN544 near field communication (NFC) radio chip for Turkcell’s recently launched T20 smartphone. The T20 handset, manufactured by Huawei, is one of the world’s first commercially available low-cost Android NFC-enabled smartphones.
On August 17, 2011, NXP Semiconductor (NXPI) announced increase in share buy back to 8,000,000 shares from 5,000,000 previouly.
Marketwire – 08/17/11 EINDHOVEN, NETHERLANDSNXP Semiconductors N.V. (NASDAQ: NXPI – News) announced today that its Board of Directors resolved to increase the number of shares to be repurchased under its stock repurchase plan as announced on July 29, 2011, from 5,000,000 shares to 8,000,000 shares.
On July 30, 2011, NXP Semiconductor (NXPI) announced Q2 2011 earnings (via Bloomberg – July 30 2011):
• Second quarter non-GAAP EPS of $0.51 missed the consensus estimate of $0.52 (GAAP EPS was $0.33). Revenue of $1.1 billion was flat year-over-year.
• NXP, based in Eindhoven, Netherlands, now sees NFC deliveries at the lower end or “perhaps even slightly below” an initially predicted range of 40 million to 100 million units, Chief Executive Officer Richard Clemmer said on an analyst conference call.
• The shortfall is caused by a combination of “formulation and agreement on the specific business models to support the ecosystem,” as well as business challenges some handset makers are experiencing
• “Carriers continue to try to figure out an economic proposition,” Clemmer said in a conference call today. The company still believes a substantial increase in mobile transactions will occur, albeit with a delay of one to two quarters, he said. For 2012, NXP expects a doubling of the number of units.
Guidance:
• Product revenue may fall as much as 5 percent in the third quarter versus the second quarter, the company said, and earnings per share will be in the range of 47 cents to 56 cents.
• For the third quarter, management guided non-GAAP EPS to $0.47 to $0.56, nowhere near the $0.66 consensus estimate and potentially falling short of non-GAAP EPS of $0.49 in the year-earlier quarter. In an ominous sign for the outlook beyond the third quarter, the company reduced its 2011 forecast of near-field communication chip shipments, explaining that mobile-phone operators are not expanding wireless payment systems as quickly as previously anticipated.

Technical Analysis:
• NXPI moved above the 50-SMA resistance at around $19 range on higher volume. The next level of resistance is around $25 (18% higher from the current price $20.23).

Disclosure: the author owns NXP Semiconductor (NXPI).

The traditional method of payment of cash and checks are moving aside based on a recent major consumer trend — mobile payments. As smart-phones have become popular, people have become more comfortable using digital currencies and mobile payment both to shop for goods online and at traditional brick-and-mortar retail stores. Stores as varied as CVS, McDonalds and New York ‘s taxi are currently accepting mobile payments.

Smart-phone providers Apple iPhone, Google Android and others are gearing up to battle for the customer wallet. Mobile payment could be a simple process of holding a phone near a point-of-sale terminal with payment made electronically. The technology behind this process is called Near Field Communication (NFC). NFC is a short-range, wireless technology that allows secure communications between two proximate devices.

Currently payment processing companies such as Visa and MasterCard collect fees for each transaction and this is a very lucrative revenue source. Competing companies recognize this near monopoly technology and are rushing to cash in on this area.

Currently, there are two dominant smart-phone players in this area. Google ‘s Wallet and Apple’s iPhone. Google’s Wallet NFC payment program has lined up major players such as Citi Bank, First Data, MasterCard and Sprint. Google is preparing to launch this summer in San Francisco and New York City.

Apple ‘s iPhone captures major market share in smartphones and has successfully dominated high volume businesses such iTunes and Apple TV. With NFC, a fee is collected for each transaction, it is certain that Apple will want to capture this huge market.

To date, Apple had not announced an NFC capable-phone. Apple ‘s iPhone 3 and iPhone 4 currently do not have NFC-capability; Experts are certain that the iPhone 5 will be NFC capable. To enable mobile payment, a chip with NFC ‘s capability is included in a smart-phone and at point-of-sale terminal.

As an interim solution, for devices without NFC capability an SD card is an approach that implements all NFC-related functionality. With mobile devices that currently have an SD card slot, users can plug in the card to get immediate NFC capabilities.

To protect its dominance, Visa and MasterCard are using micro-card type to be NFC-enabled. Visa is using a payWave technology, NFC-enable like chip (micro-SD card) to insert into a phone. Users then download an app to make a transaction. To date, there are eleven banks that have signed up including JP Morgan, Bank of America and Well Fargo.

On August 9, 2011, Visa announced plans to accelerate chip migration and adoption of mobile payments.

Companies:•
NXPI – a Dutch company that makes chip that runs Google ‘s Wallet. The market expects 472 million smart-phones to be shipped in 2011. On Aug 2, 2011, NXPI announced a complete fingerprint-enabled payment in the US via a Motorola Android phone using technology from NXPI, AuthenTec and DeviceFidelity.

VeriFone (PAY) – makes the terminals that read credit cards; The company announced that it will enable all of its devices with NFC technology by the end of 2012.

Technology Partnership:Joint ventures with credit card companies, cellular providers and internet companies:
• Isis – joint venture with American Express (AXP), Mastercard (MA), Visa (V) and AT&T (T), T-Mobile, Verizon and Discover Card (DFS). Payment is waving their phone at the point-of-sale terminals.
• Google Wallet – partnership with Citigroup©, Mastercard (MA), First Data and Samsung.

Competing Technology:
• Ebay’s paypal and prepaid credit cards from Netspend and GreenDot.
• Social Networking ‘s Facebook – BitCoin (virtual currency) – digital currency developed by MIT.

Risks:
• Federal Regulation – Durbin Amendment stated that the Federal Reserve can have a say on interchange fees proposed by Visa and MasterCard.
• Security of financial data

HedgeFunds Holding:
• Third Points, LLC – Dan Loeb
NXPI
Nxp Semiconductors N.v.
2011-03-31 Add History
1.42% $20.93 – $31.95
($26.4) $ 17.09 -35% Add 50.78% 4,750,600

George Soros
2011-03-31 New Buy $20.93 – $31.95 $ 17.09 -35% 11100 History

In summary, mobile payment NFC technology’s penetration rate will be extremely huge over the next several years. The U.S market is currently in its infancy in adopting this technology. Japan and Korea are currently using NFC-enabled mobile payment technology. Emerging markets such as Brazil, India and China represent a huge un-tapped market. Recent research from Juniper Research indicates the mobile payments market will triple to $670 billion worldwide by 2015.

In the near term, the major markets are in correction mode. Investors with a short-term outlook would be wise to wait for the market upturn prior to making an investment. Those with a longer term horizon might want to initiate a position in this growing industry as these stocks have corrected anywhere from 20% to 40% from their 52-week highs.

Below is a stock with good fundamentals:

InterDigital,Inc.(IDCC) looks appealing at the current multiple:
This near $27. stock has $11 per share in cash and short term investments. InterDigital’ s revenue increased (ttm vs prior ttm) 41.2%. Revenue for the 3/10 quarter was $116.m. The sales increase was due to higher recurring patent licensing royalties. Lower selling, general & administrative expenses contributed to higher earnings in the March 10 quarter.
Growth Rate:
YEAR REVENUE E.P.S.
2008 act. 228.5m 0.57
2009 act. 303.8m 1.73
2010 est. 363.0m 3.20
For the trailing 4 quarters, ending 3/10, the return on equity is 93.6%. The debt to capital ratio at 3/10 is 2.4%.
IDCC is positioned nicely in the shift from 2G to 3G tele-communications. They have already established a strong licensing position for LTE (read conference call 4/29/10). In addition, they have over 50% of the emerging cellular machine to machine market under license.
In summary: IDCC’s low debt, high return on capital, good annual earnings growth, low P.E. ratio of 8.6 and considering that 40% of the stocks selling price is in cash and short term investments, we believe it warrants consideration when the technicals are right.
J. Passalacqua

Possible buy around $25.30 price range.