Stay Focused in a Volatile Environment With CERN, AKAM

I don’t have to tell you that volatility is on the rise. The choppy start to 2015 has been a rude awakening for investors who got used to what was a relatively smooth 2014.

Volatility roller coaster

Barring a few tumultuous periods — like the one in October — last year went in the books as 23% calmer than the statistics would otherwise imply. Believe it or not, we basked in three full months when the S&P 500 did not even move a single percentage on any given day.

Fast forward to 2015, and we’ve faced a market that’s been just about as choppy as last October. The least volatile day so far has been a wilder ride than the average action we enjoyed most of last year.

I know it can be unnerving to shift from such a low gear all the way to what feels like racing speeds in just a matter of weeks. Still, volatility is actually closer now to normal levels, and I suspect this year will not be as calm as last.

Through it all, I expect the market to end the year higher. So, you don’t want to let the volatility scare you out of the market. Instead, you want to use it to take advantage of opportunities to buy quality stocks at cheaper prices.

Here are a couple you may want to consider:

Investing in Healthcare Technology

One area I continue to like is the intersection of healthcare and technology, which has long been a game-changing trend, and the move toward electronic health records (EHRs) is only making it a more powerful one.

The company best-positioned to take advantage of this trend remains Cerner Corporation (NASDAQ:CERN), which I have recommended in my GameChangers service since August. Cerner is up nearly 20% since then, but I see CERN stock moving higher.

Cerner provides a platform to make keeping track of EHRs an easier process across all platforms of medical research, patient care, pharmaceutical/medication management and billing. Its software manages various processes for healthcare organizations of all sizes.

Cerner’s main software, Cerner Millennium, allows healthcare professionals to access a patient’s EHR at the point of care. Cerner get up-to-date patient information in real time, allowing them to make decisions quickly. Just think how valuable that is in an emergency room, where the hectic pace is ripe for error and inefficiency.

Cerner is also growing its cloud-based software platform, which creates an “anytime, anywhere” data system that allows healthcare providers to aggregate and reconcile data across several points of care. It can receive data from any source and store it in one location using the cloud, which means less time waiting, improved outcomes and lower costs.

Over the past decade — including the recession — CERN has managed to grow revenues at a mostly-organic growth rate of 13%, while earnings have jumped nearly twice that at 25%, boosted by operating margins that climbed steadily from 9% to the mid-20% range. That’s a pretty impressive record, and the Affordable Care Act (ACA) is partly to thank.

In its fiscal fourth quarter, Cerner again showed strong growth. CERN reported a 15.5% increase in revenues that was comprised of a 10.8% increase in system sales and a 16.7% increase in support and service revenues. While gross margins narrowed slightly, management indicated that this would subside in future quarters, and by leveraging selling, general and administrative (SG&A) expenses with higher volume, Cerner was able to report a 20% increase in earnings.

Cerner also noted an expanding customer base, which is just another sign that solid growth should continue in the future. Plus, the 15 cents per share benefit stemming from Cerner’s pending acquisition of Siemens Medical Hospital (which is expected to close this quarter) gives me a good deal of confidence that CERN can earn $2 a share or more in 2015.

CERN stock has been a steady performer recently and is an attractive safe haven during periods of global economic concern. And as more companies make the transition to electronic medical records, I believe CERN can only continue to show solid growth.

Investing in the Need for Speed

The “need for speed,” when it comes to delivering video, audio and data across the Internet, is another investable long-term trend. After all, the flow of information across the Web is only going to grow at an exponential rate in the future.

That’s why I like Akamai Technologies, Inc. (NASDAQ:AKAM). Akamai operates at the intersection of content delivery and network security and has roughly 135,000 servers across the globe. These servers help Aakamai customers — including virtually all of the largest media and video-intense companies in the world like Yahoo! Inc. (NASDAQ:YHOO), Facebook Inc (NASDAQ:FB) and Netflix, Inc. (NASDAQ:NFLX) — bring data faster to the ultimate user. That means people like you and me who are busy downloading videos and photos.

Akamai says its servers are located on what might be termed the “edge” of the Internet, which means that the servers are located physically close to end users. Because of that, content gets delivered faster. According to Akamai management, as much as 30% of global Internet traffic is routed and cached across AKAM’s servers.

And since AKAM’s servers sit on the edge of the network, they are outside of corporate firewalls that are installed on premise or in the cloud. Therefore, Akamai’s servers offer a first line of defense against cyber-attacks, helping to deflect attacks before they ever make it to the corporate firewall.

While cybersecurity revenues are only a small piece of the pie — accounting for just 3% of total revenues in 2013 — recent acquisitions should help boost that revenue stream. In fact, one sell-side analyst estimates that additional revenue stream should be $200 million in 2015, or 10% of total revenues.

Akamai is also attractive right now because it is a relatively U.S.-centric tech play – it gets 70% of its revenues domestically. This is increasingly important as concerns regarding international exposure and a weakening global economy have contributed to broad market volatility.

While AKAM can be volatile, too, I believe the current first quarter is going to be a strong one for Akamai, and management’s solid guidance for 2015 could be a nice catalyst for the shares. Internet traffic growth should also continue to benefit AKAM as more IT departments shift their applications to the cloud. There’s also talk that Akamai could make a few acquisitions in order to bolster its security offerings, which would help management achieve their $5 billion revenue goal.

Akamai already holds 18 of the top 30 software as a serve (SaaS) providers as customers, and continued new product releases should only allow these clients to use AKAM’s solutions to decrease the time it takes for customer sign-ups, as well as to troubleshoot performance and reliability issues.

With solid near- and long-term growth outlooks and a reasonable valuation, I continue to see impressive potential in AKAM shares.

Hilary Kramer is the editor of GameChangersBreakout Stocks Under $10High Octane TraderAbsolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network, and other media.

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