News Analysis date published New: 
Monday, October 22, 2012 - 11:30
New Date created: 
Friday, October 26, 2012 - 14:10
New Date last updated: 
Monday, October 22, 2012 - 11:30

This Little-Known Stock Could Soar 78% if Obama is Re-Elected

Monday, October 22, 2012 - 11:30am

The words "government" and "efficiency" rarely go in the same sentence. How can one reduce "wasteful" spending, and alter or replace "inefficient" government programs in an efficient manner, while keeping everyone happy? We surely will see another heavyweight title showdown within Congress as Republicans and Democrats fight over the tens of billions in so-called budget "sequestration" set to take effect through the end of 2013. Whoever wins the presidential election in a few short weeks has quite the job ahead.

But the biggest challenge in government is not fixing the mess but rather just trying to get accurate, timely information on where federal funds are actually going. No one within government or outside truly has a complete understanding of how the federal government spends money. It's simply the nature of the beast: As governments get larger, they get more inefficient.

David V. Mastran saw this first hand years ago as an welfare grants manager at the U.S. Department of Health, Education and Welfare. And when he was unable to find a private company that understood welfare programs well enough to help the government instill efficiency, he quit his job and sought out to fill that void.

So in 1975, Mastran founded MAXIMUS Inc. (NYSE: MMS) with $12,000 of capital and working out of his home. His mission: To make the government more efficient.

About 20 years later, the company went public and had a rough go for many years, until things finally started to look up. By the time President Barack Obama took office in 2009, the stock was standing at about $17 a share. Since then, shares have skyrocketed to about $58, an amazing gain of 227% in just four years. And if Obama is re-elected, then that's when the real party begins. Investors who get in on this party now could make 40-50% just in the next 12-18 months.

Here's the story...

MAXIMUS provides outsourcing services to government health and human services agencies. It does the administrative work for Medicaid, the Children's Health Insurance Program (CHIP), health care reform, welfare-to-work, Medicare, child support enforcement, and a host of other government programs. It is the largest Medicaid and CHIP administrator in United States, and the largest provider for health insurance appeals for Medicare. Most recently, it was selected to develop Minnesota's Health Insurance Exchange and has a broad international presence, providing services to Canada, the U.K. and Australia.

By providing these essential services to government administrations, the company has done quite well. So as governments get bigger, the demand for MAXIMUS' services will most likely increase as well. Take a look at MAXIMUS' performance under Obama's Administration below:

MAXIMUS has seen a steady increase of revenue during the past four years, from $720 million in 2009 to $929 million in 2011. Analysts project the company will report revenue of about $1.04 billion this year. For 2013, they say revenue could grow about 20% to $1.25 billion.

During the past five quarters, earnings increased from $2.24 per share to an estimated $2.31 per share this year. The company has exceeded earnings targets 83% of the time during the past three years and is very solid from a financial perspective. And because the company recently reported better-than-expected results, analysts have raised forecasts. During the past 90 days, the consensus 12-month price target for MAXIMUS has increased notably from $51.60 to $68.33, a 32% gain. It had almost $169 million of cash on hand at June 30 and it has no long-term debt.

Risks to Consider: If former Massachusetts Governor Mitt Romney is elected, then MAXIMUS could see its demand decrease a bit, causing shares to retreat. Also, MAXIMUS is a bit pricey at the moment at price-to-book ratio of 4.5, which is higher than most firms in the sector.

Action to Take --> Buy MAXIMUS Inc. up to $60 a share. I think this stock could hit $100 during the next 12-18 months if Obama is re-elected.

Because it provides business process outsourcing services to governments in the United States, Australia, Canada, and the U.K., it is well diversified and in a high-demand industry during this time of fiscal crisis.

P.S. -- Regardless of who wins the election, we've found a unique group of "underground" stocks that allow you to invest in the same way Mitt Romney, Bill Clinton and other wealthy elites have used to make a fortune. Details here...

Jay Peroni does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.