The proliferation of technologies like cloud computing and smartphones has had transformative impacts on many industries. Just look at Uber, which has disrupted the traditional taxi industry in just seven years.
But transportation is hardly the only industry that’s in for a change as tech stocks start to spread their tentacles. Healthcare looks like a pretty good bet as well.
According to a report from the Commonwealth Fund, the amount spent on U.S. healthcare came to roughly $9,086 per person (in 2013) or about 17% of the gross domestic product. That’s more than 50% higher than what is spent in other developed countries, such as Australia, France, Germany, Japan, the U.K. and Sweden.
And on our current track, spending is expected to increase even further. That’s in part because of factors such as the aging of the U.S. population, and the expenses of new drugs and treatments. That’s also because of tremendous amounts of waste, estimated at around 34% of total spending, according to the Journal of the American Medical Association.
That’s where technology comes in.
A number of tech stocks are purely dedicated toward innovations that should alleviate cost pressure and improve outcomes. And a few sprawling tech behemoths are developing new healthcare technologies as well.
The following are seven tech stocks to buy, as they look primed to pull profits out of the healthcare space:
Tech Stocks to Buy for Healthcare Riches: Everyday Health (EVDY)
Traditional healthcare companies continue to rely heavily on marketing channels like TV, print, radio and billboards. But unsurprisingly, some firms have shifted toward digital channels, where more people are spending their time.
And digital channels offer some distinct advantages, such as clearer analytics and a greater opportunity to build relationships with customers.
All this benefits Everyday Health Inc (NYSE:EVDY), which operates a variety of digital platforms and mobile apps that provide healthcare content and interactive tools to consumers and professionals. Already, investors have been catching on; EVDY has logged a return of more than 35% so far this year.
Better yet: Everyday Health is in its early stages, and the opportunity is a healthcare industry that spends $30 billion a year on marketing.
The real gem for EVDY might not be its consumer properties, though, and instead its professional business. Remember: Pharma companies spend three to five times more on marketing to physicians than consumers. Everyday Health has a base of 738,000 U.S. practicing physicians and 103,000 nurse practitioners/physician assistants. The company also has its own customer relationship platform that has been gaining lots of momentum. As a testament to its effectiveness, EVDY recently signed a $14 million three-year deal for the software with a top U.S. hospital.
Considering that quarterly revenues come to only about $60 million or so, it won’t take too many of these deals to move the needle a long way.
Tech Stocks to Buy for Healthcare Riches: Medidata Solutions (MDSO)
Successful clinical trials can mean the difference between tremendous success or abject failure. It’s not uncommon to see a stock plunge by 80% or more on news of a U.S. Food and Drug Administration rejection. In light of this, biotech companies want to make sure they use top-notch technology platforms to manage their clinical trials.
Medidata Solutions Inc (NASDAQ:MDSO) offers one such platform.
Founded in 1999, Medidata has amassed a sterling customer list, and has managed the clinical trials of 17 of the world’s top 25 global pharma companies. MDSO has been able to translate this into solid financials, such as last quarter’s 17% increase in revenues to $114.6 million. Cash flows from operations were a healthy $25.5 million, too — that’s more than double on a year-over-year basis!
MDSO’s cloud platform, Rave, allows for real-time collaboration, tracking and analytics. This platform has helped Medidata snag customers from its rivals. For example, MDSO recently signed up Biogen Inc (NASDAQ:BIIB), which had previously used Oracle Corporation’s (NYSE:ORCL) platform.
Medidata has continued to push the envelope with its technologies, as seen with the efforts with mobile apps. The company has been investing in Apple Inc.’s (NASDAQ:AAPL) ResearchKit system, which should put MDSO in good position to improve its data, especially since smartphones should make it easier to track patients in clinical trials.
Tech Stocks to Buy for Healthcare Riches: Cotiviti Holdings (COTV)
Cotiviti Holdings Inc (NYSE:COTV) CEO J. Douglas Williams once said on an earnings call, “Complexity is our friend.”
Most of us probably can’t relate to this, but it’s true for Cotiviti.
You see, Williams’ company leverages sophisticated data analytics to help health plans and retailers uncover errors in billings. In fact, last year COTV realized savings of $2.7 billion for its clients.
Of course it did. The healthcare billing system is a mind-numbing byzantine system — and there’s no signs that simplicity is on the way. Consider that the introduction of the ICD-10 coding framework in October 2015 has meant about a 5X increase in potential diagnoses codes to roughly 68,000. Nevermind all the myriad changes related to the Affordable Care Act.
Cotiviti has the benefit of a customer base of 40 healthcare organization, including eight of America’s top 10 commercial, Medicare and Medicaid managed health plans. It also boasts 40 retail clients, including eight of the 10 largest in the U.S.
The growth prospects are real. During the latest quarter, the top line jumped by 19% to $158.3 million. Meanwhile, the market opportunity for healthcare payment accuracy alone is $5 billion.
It does take time for COTV to acquire new clients and realize substantial monetization. But once it reaches a critical mass, revenues tend to be highly reliable. The average length of relationships of its 20 largest healthcare clients is about nine years.
Tech Stocks to Buy for Healthcare Riches: Teladoc (TDOC)
Teladoc Inc (NYSE:TDOC) got its start back in 2002. At first, the focus was on allowing consumers to get medical diagnosis by telephone, but the launch of the iPhone really took TDOC to the next level.
Now, Teladoc is the largest player in the fast-growing telemedicine market. There are more than 3,000 board-certified physicians and behavioral health professionals on the platform, and they help with diagnosis for such ailments as urinary tract infections, sinusitis dermatological conditions, anxiety and even smoking cessation. For the first half of this year, TDOC served about 439,000 patient sessions, compared to 576,000 for all of 2015.
The focus of the business model is to sell memberships to employers and health plans, which see the service as a way to help contain healthcare costs. But there are other meaningful benefits including convenience; the satisfaction rate is about 95% over the past seven years.
Growth has been torrid. In the latest quarter, revenues shot up by 45% to $26.5 million as total visits soared by 59% to 199,106. The company is also on track to be cash-flow positive next year.
This is a budding opportunity. The telemedicine market is nascent, and America sees 548 million patient visits a year. In other words, there is all sorts of growth potential remaining in this one.
Tech Stocks to Buy for Healthcare Riches: Cerner Corporation (CERN)
Cerner Corporation (NASDAQ:CERN) is admittedly not the kind of tech stock that will generate huge returns, but if you want a more conservative play on healthcare innovation, this is the one to make.
Cerner’s roots go back to 1979, when the first personal computers started to hit the market. CERN jumped into the fray, leveraging technology to help healthcare companies better manage their operations.
Cerner currently sports a market cap of about $20 billion and has a customer base of over 20,000 facilities across the globe. It actually boasts two main categories of products:
- Cerner Millennium, which provides for secure access of electronic health records as well as comprehensive management of clinical, IT and financial data
- Healthe Intent, which provides similar services, but uses cloud technologies.
Here, growth has been fairly moderate. Revenues did climb 8% higher to $1.22 billion, and earnings came to $166.5 million, in the most recent quarter. Backlog also improved by 13% to $15 billion.
But CERN is positioned nicely to benefit from several long-term trends.
The U.S. healthcare system is in the midst of a major upgrade of legacy technologies to achieve better inefficiencies. And Cerner has the scale, credibility and systems that make the company top-of-mind choice for customers looking for a solution.
Tech Stocks to Buy for Healthcare Riches: International Business Machines (IBM)
International Business Machines Corp. (NYSE:IBM) may seem like an odd choice. Not only is it a general-purpose tech operator that caters to many industries, but it’s a struggling general-purpose tech operator. IBM has posted 18 consecutive quarterly declines in revenues!
So, why IBM?
Well, healthcare actually should be a major catalyst that returns IBM to growth. IBM has invested huge amounts of money into Watson, its sophisticated artificial intelligence (AI) platform. Watson Health alone has more than 7,000 employees that work on categories including imaging, oncology, life sciences and value-based care.
IBM has already created made some major achievements. For instance, researchers at the University of Tokyo announced that Watson helped with a medical breakthrough for the diagnosis and treatment of a rare form of leukemia. This was actually the world’s first example of AI being used in such a way.
In fact, IBM thinks that Watson could help transform healthcare systems as well. Just look at a recent partnership with the Finnish government, which will use the technology to help improve doctor care.
“Their vision is to build an open healthcare ecosystem, based on compliant and efficient utilization of healthcare data,” IBM CFO Martin Schroeter says. “So Finland will put their healthcare data on our Watson Health cloud.”
IBM stock currently trades at value levels, including a forward price-to-earnings ratio of just 11. Meanwhile, IBM yields a robust 3.6%.
In other words, IBM is offering investors several possibilities for upside from here.
Tech Stocks to Buy for Healthcare Riches: Omnicell (OMCL)
Several decades ago, Randall Lipps saw a big opportunity to apply new technologies to healthcare. Specifically, he believed a smart focus would be to target medication and supply management.
So, in 1992, he founded Omnicell, Inc. (NASDAQ:OMCL), and that move has worked out pretty darn well.
OMCL now boasts more than 4,000 customers who use the products to help improve efficiency, reduce medical errors and bolster patient safety. Omnicell is now even using robots to help with the dispensing of medications.
The result? Well, this old company still has plenty of spring in its step. In its second quarter, for instance, revenues spiked by 53% to $172.9 million.
You see, Omnicell is currently benefiting from various megatrends. One is the adoption of electronic records, which is critical for enhancing treatments. But there is also the long-term impact for changes in reimbursement structures, which often hinge on the quality of care.
OMCL has lots of runway left, and much of that growth could come internationally. Only 16% of revenues come from overseas — a fine number, because that means Omnicell is making headway, but still has plenty more market to eat.
Tom Taulli runs the InvestorPlace blog IPO Playbook and also OptionExercise.com, which provides interactive tools and financial services for those who have employee stock options (pre- and post-IPO). Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.