Opinion on  Quality Systems Inc. (QSII)     Sector: Technology  >  Industry: Software & Programming
Mayor’s Picks - July 2007

A big dive in the market yesterday. It looks like investors were spooked by a few earnings bumps and of course the housing market scares everyone. The reality is that housing is bad. There will be a lot of people who lose a lot of money on houses but it will be slow. There aren’t going to be millions of foreclosures in the next month, it’s going to take years for this whole thing to settle out. In the mean time the economy is good, employment is good, inflation is low so as a while the market has no big worries. Take the dips because of sub-prime or housing worries as buying opportunities. Speaking of which, here’s a recap of my performance over the last 11 months and my picks for this month.

1 Month Return +0.14%

2 Month Return +9.38%

3 Month Return +12.45%

4 Month Return +18.53%

5 Month Return +7.83%

6 Month Return +17.07%

7 Month Return +16.73%

8 Month Return +27.93%

9 Month Return +25.15%

10 Month Return +29.56%

11 Month Return +47.51%

STOCK SYMBOL (Current Price, Monthly % Change) - Rating - Comments

DIS (34.88, +0.98%) - Buy - I like Disney’s strategy of getting into the digital distribution game. Over the next six months I expect them to announce the availability of most of Disney’s movies in HD on iTunes. With their ties to Steve Jobs and Apple they can ride their recent hits to new profits. ESPN is still the power house on cable and is demanding increased pricing every year. They are a standard setting company in television, movies and amusement parks.

HMC (36.78, +2.94%) - Buy - Honda is a great play to counter oil prices and get in on the small car craze. As oil rises even higher in coming months and years Honda is in great position to capitalize. Also, expansion into small airplanes will be a boost.

SHLD (147.71, -15.82%) - Buy - This was a terrible month for Sears after warning earnings will be low the stock tumbled and Wall Street kicked them to the curb. So this is a great time to get in the stock. With over $3 billion in cash, a big share repurchase plan and a legendary hedge fund manager in control some big moves could be made. A sale of real estate or acquisition of another company could be on the docket if the market continues downward. I can’t jump off this bandwagon now, I see this as a buying opportunity.

PCU (114.45, +21.34%) - Buy - PCU saved me from a losing month vs. the S&P. I wrote last week about how I think natural resources will be a big winner over the next few years with countries expanding all over the world. PCU is a great stock for that and they pay a big dividend. What’s not to like?

PRTY.L (29.25, -26.88%) - Buy - This is still a speculative stock but the growth they have experienced OUS is still very high. If online gambling is legalized in the US you could see a jump as high as $120. I like the upside.

XOM (91.82, +6.32%) - Buy - Exxon has the dominant position in oil. I don’t believe prices are going to decline and may go as high as $6 in the next three years. If this happens they’ll have so much cash they won’t know what to do with it.

LVS (83.94, +10.77%) - Buy - It’s been a good month for LVS but with their largest Macau casino opening at the end of August investors will start getting in. Over-development is a concern but with so many people in Asia coming into the middle class the casinos should fill up.

F (8.04, -9.15%) - Buy - Ford may be an odd stock for me to pick but I think the new CEO will be good for the company long term. They now have the highest quality rating for a new car, mileage is improving slowly. If they can get a couple of winners in the pipeline this will be a great company to own. UAW will need to buy into their strategy so that’s the risk with Ford.

BRK-B (3,645.5, +0.87%) - Buy - Berkshire is one of the best companies in the world and will be a great investment long term. The stock has been stagnant for a while with concerns about Warren’s future and the growth of the portfolio. This gives us a great time to buy one of the best companies in the last 50 years.

QSII (39.16, +2.59%) - Buy - I introduced QSII last month and I still think it’s a great company to own. Their products will be used in every hospital before too long.

This was one of the weirder months in the past few years. Mortgage news brought the market down nearly 10% and then it jumped back up. If you read last month’s picks I hope you used that as a buying opportunity. I added to my holdings of PCU and I’m already up 20% in just a few days. Gotta love the market. For the next few months things should settle down as earnings will be coming out in October and no one expects an earnings dive. If that happens we’re in trouble but the mortgage market will only affect certain companies in a big way. So keep investing in solid companies, and listen to The Mayor for market beating results (12 straight months). On with the show….

1 Month Return -2.86%, S&P -3.42%

2 Month Return -0.69%

3 Month Return +12.17%

4 Month Return +15.84%

5 Month Return +22.06%

6 Month Return +10.13%

7 Month Return +13.97%

8 Month Return +9.31%

9 Month Return +20.21%

10 Month Return +19.87%

11 Month Return +29.74%

12 Month Return +46.19%

STOCK SYMBOL (Current Price, Monthly % Change) - Rating - Comments

AAPL (132.51, -3.49%) - Buy - Apple will be a mainstay for months to come so don’t be surprised to see them top the list. What can I say bad about Apple right now? Mac’s are going well, iPods are bringing stability to earning (because they’re accounting for sales over the 2 year contract) and the iPod, iTunes combo are kicking everyone else in the rear. I can’t think of anything not to love. It’s also The Mayor’s biggest holding. That’s money where my blog is.

PCU (99.14, -13.38%) - Buy - Southern Copper is my materials pick. They pay a huge dividend and have new capacity set to open in the next two years. Solid stock for the portfolio.

PRTY.L (26.25, -10.26%) - Buy - I still like the profitability and the potential of online gaming. I’ve picked this before and it’s been up and down but if you can endure the ride you can make a lot of money.

LVS (99.37, +18.38%) - Buy - LVS has the best pipeline of projects in gaming. There is a huge development in Macau along with an incredible development in Singapore. Their second Macau casino opens in less than a week and once investors see how successful it is you can bet the stock will go up. Again this might be a wild ride but surely a profitable one.

BAC (51.65, +8.21%) - Buy - Bank stocks have been battered so much lately that it’s time to buy. With the announcement they purchased a 10% stake in Countrywide yesterday the stock jumped but I still like the prospects for the future. Bank of America is the largest retailer and is the best value in banking right now.

BRK-B (3939.00, +8.05%) - Buy - When markets are down Warren Buffet’s Berkshire stays up. This company is virtually recession proof and will maintain great growth. This is still a buying opportunity for a great stock.

QSII (38.81, -0.89%) - Buy - Leader in medical systems. The industry is growing and Quality Systems is a leader.

BP (65.27, -9.18%) - Buy - BP has hit some rough patches with oil leaks and other bad PR. I don’t think gas prices will go down in the future so oil is a great play and I like BP the best. The value is there.

Welcome back to the Mayor’s Picks. The market was in for quite a ride yesterday. One of the best days in recent history. The S&P was up almost 3%, which is incredibly high. But high valuations make a Mayor like me nervous. I’m much more comfortable knowing the stocks I’m buying are low. It’s hard to say stocks are low right now but they are still going up.

Performance for last month’s picks were solid with a great showing from Las Vegas Sands (LVS). The challenge is harder now as I look for bargains in a rising market. My returns for the last twelve months are below along with the picks for this month.

1 Month Return +5.05%, S&P +3.81%

2 Month Return +2.15%

3 Month Return -0.69%

4 Month Return +12.17%

5 Month Return +15.84%

6 Month Return +22.06%

7 Month Return +10.13%

8 Month Return +13.97%

9 Month Return +9.31%

10 Month Return +20.21%

11 Month Return +19.87%

12 Month Return +29.74%, S&P +15.46%

STOCK SYMBOL (Current Price, Monthly % Change) - Rating - Comments

AAPL (140.92, +6.35%) - Buy - Apple is still growing in computers and iPods but the profits will spike when iPhone sales hit. Some carriers are giving as much as 40% of their monthly fees to Apple for the rights to the iPhone. This means a $400 sale price plus $10-20/month for Apple. Profits should be $400+ per phone sold over it’s two year life. If they sell 10 million per year that’s $4 billion in profits. Believe it.

PRTY.L (23.75, -9.52%) - Buy - Online gaming will continue it’s growth and this will be a great stock, just think long term.

LVS (131.65, +32.48%) - Buy - Great performance in the last month but long term this stock will continue to go up. Macau will be huge along with Singapore and Las Vegas. Great management team just knows how to make money.

F (8.42, +7.26%) - Buy - Ford is the one American company that has made the changes necessary to turn around in the future. Their new CEO brings new blood into an old company and a new approach. They were about to buyout 30,000 workers to save costs. The biggest indicator is that they had the highest initial quality for the Fusion. If they can do that again with a new Focus their product lineup will be much better than five years ago.

BAC (51.21, -0.85%) - Buy - Financial stocks have been hit hard and will continue to but BAC pays a 5.6% dividend and has a huge retail presence. This stock won’t outgrow smaller more nimble companies but it’s a solid base to any portfolio.

BRK-B (3952.00, +0.33%) - Buy - Berkshire is another foundation company. I can’t believe their value has stayed low so long. A bounce will come as investors look to safer stocks.

QSII (34.51, -11.08%) - Buy - Quality Systems makes medical and dental software for managing information. This is a growing field and no company is growing faster or has better profitability than QSII. Forward P/E under 20 gives them a reasonable valuation right now.

AOB (10.36) - Buy - American Oriental Bioengineering was brought into Main Street by my guest writer this month and I’m buying into their growth strategy. They sell plant based medicine in the Orient and have shown strong growth and profitability. As this area becomes more westernized the industry should grow at a rapid pace.