One health care sub-sector that experienced no major reform overhang is information technology. The move to electronic records for hospitals and physician practices was never in doubt.
The fact that the movement to electronic records is coming without a doubt has made large-cap names like Cerner (CERN - Get Report) very popular; Cerner has been trading in the range of its 52-week high of $85.97 since mid-October.
The information technology health care stocks, including Cerner, AthenaHealth (ATHN) and Allscripts-Misys Healthcare Solutions (MDRX) have all experienced a big rally over the second half of 2009. Decent earnings have helped push shares higher, but the potential for government incentives to hospital and physician practice customers of these IT firms for making the change to electronic records, is a bigger part of the upswing.
Some analysts think that potential has been overdone, at least in terms of a 2010 story. "Some time, we will have to see genuine evidence of the potential, and it's not like the government has opened up its checkbook yet," said Miller Tabak's Funtleyder. "For Cerner, it is put up or shut up time," Funtleyder added.The Miller Tabak analyst believes that the recent earnings alone do not justify the run-up in these IT stocks, and the adoption rate for electronic records is still an unknown. "The massive demand will either show up, or it won't, but there is already a lot of optimism priced into these stocks. We take a wait and see approach, as opposed to chasing these names now," Funtleyder said.