7 AI Stocks to Buy for the Increasing Digitization of Healthcare

AI stocks - 7 AI Stocks to Buy for the Increasing Digitization of Healthcare

Source: Shutterstock

The increased move to digitization is only one of several trends the healthcare industry has embraced in the past few years. Transferring paper-based information to digital formats gives health professionals faster access to data, but the benefits don’t stop there. To turn the stored information into something useful, the industry needs systems that find patterns, recognize what is important and perform predictive analysis. On that basis, investors should consider AI stocks.

The digitization of healthcare-related data will involve companies that lead in Artificial Intelligence. The rise of AI will not lead to job losses for healthcare professionals, but instead enable companies to automate repetitive tasks and free their staff to do other, more valuable things.

Here are seven AI stocks to buy for the increasing digitization of healthcare:

  • International Business Machines (NYSE:IBM)
  • Baidu (NASDAQ:BIDU)
  • Medtronic (NYSE:MDT)
  • Stryker (NYSE:SYK)
  • Nuance Communications (NASDAQ:NUAN)
  • Alphabet (NASDAQ:GOOG)
  • Alibaba (NYSE:BABA)

How might AI-powered systems contribute to a better healthcare system? Electronic Healthcare Records (EHRs) have a rich dataset to back up the benefits of AI. As medical costs for patients increase at an uncontrollable rate, the industry will want to invest in AI solutions to lessen the load.

International Business Machines (IBM)

Sign of IBM on the office building
Source: Laborant / Shutterstock.com

International Business Machines reported lower year-over-year revenue for the second quarter. Revenue fell 5.42% Y/Y to $18.12 billion, though it earned $2.18 a share. Watson is a central brand for the AI solution IBM offers, as well as a part of its hybrid cloud strategy, which IBM advertises may help its clients work through both complex and regulated workloads.

According to IBM, Watson “helps you predict and shape future outcomes, automate complex processes, and optimize your employees’ time.” For example, AI will help healthcare professionals with surface treatment, supporting user needs, and by targeting similarities and patterns.

IBM Industry S&P 500
Value Score 89 57 73
Price / Earnings 14 31.3 30.9
Price / Sales 1.5 1.6 2.4

Data courtesy of Stockrover

As a tech stock, IBM trades at a steep price-to-earnings multiples well-below both industry and S&P 500 averages. Markets are punishing IBM stock for the slow growth in its legacy businesses.

IBM still has plenty of work ahead in building Watson’s AI doctor. Until it gets beyond the hype and delivers on helping such things as making diagnoses, IBM will rely on business growth from its other business units. That includes Red Hat and Cloud Paks.

Baidu (BIDU)

A Baidu (BIDU) sign outside a company office in Shenzhen, China.
Source: StreetVJ / Shutterstock.com

China-based Baidu established a health internet hospital on March 18. It also recently established Baidu Health Technology. The company is committing to the online healthcare industry with strong experience in big data and AI technologies.

Baidu’s value score is on par with the index, as shown in the table below. As its role in healthcare increases, price-to-sales ratio will expand to match that of the industry average. Baidu stock will increase as a result:

  Stock Industry S&P 500
Value Score 73 41 73
Price / Earnings 100+ 44.9 30.9
Price / Sales 2.8 7.9 2.4
Price / Free Cash Flow 29.5 43.3 21.9

Data courtesy of Stockrover

Baidu said last year that it would donate AI-integrated fundus screening machines to 500 medical centers. Already, the donation is paying off. The AI-powered camera detects eye fundus and creates a screening report in mere seconds. Because China has a shortage of ophthalmologists, Baidu is helping to increase the availability of patient care.

In the near term, the company will build its Baidu Health unit. This included holding more than 100 live broadcasting events on COVID-19. Baidu Health also helps users register for doctor appointments, get information on hospitals and doctors and connect with doctors for online consultation.

On Wall Street, the average price target for Baidu stock is $146.67 (per Tipranks).

Medtronic plc (MDT)

Medtronic (MDT) sign outside office building representing healthcare stocks
Source: JHVEPhoto / Shutterstock.com

In 2019, Medtronic launched its first AI system for colonoscopy. The company said, “The GI Genius module uses advanced artificial intelligence to highlight the presence of pre-cancerous lesions with a visual marker in real-time – serving as an ever vigilant second observer.” A “new era of diagnostic endoscopy” should improve the detection rate that a doctor may miss, ultimately saving more lives.

Stock Industry S&P 500
Quality Score 92 47 79
Gross Margin 67.40% 63.20% 28.80%
Operating Margin 18.10% 12.40% 12.80%
Net Margin 16.60% 12.80% 8.30%

Data courtesy of Stockrover

Above, Medtronic stock scores a 92/100 on quality. The market is ignoring its strong gross margins relative to the S&P 500.

Chairman and CEO Omar Ishrak recently explained how the model for personalized medicine is becoming a reality. That will depend on developing AI solutions in the healthcare market. In doing so, the company will empower physicians.

By giving doctors clinical and behavioral data, providers will have more information available. Making better-informed decisions will increase the effectiveness of patient treatments.

Stryker (SYK)

a worker with a tablet remotely operates a standalone robot arm
Source: Shutterstock

More of Stryker’s customers are ordering robots. As robotic surgery procedures increase, the role of artificial intelligence in healthcare will rise in importance, too. Stryker is a leader in orthopedic robotics. In the second quarter, the company posted strong orders, thanks to its continued push for innovation. Joint replacement surgeries, for example, are growing above the market rate.

  Stock Industry S&P 500
Value Score 74 41 73
Price / Earnings 45.9 48.6 30.9
Price / Sales 5.2 5.2 2.4
Price / Free Cash Flow 37.5 52.3 21.9

Data courtesy of Stockrover

Stryker’s price to free cash flow ratio is below that of the industry. Given its strong role in AI in healthcare, the Stryker stock is trading at a discount.

On its conference call, Stryker’s VP of Investor Relations, Preston Wells said, ”whether they’re competitive accounts that are in or out, we’re really just going to all of those different accounts and trying to find areas to place Mako.”

Wells further implied the addressable market will get larger as customers ask for more solutions from Mako. The robotic-arm uses a 3D CT-based planning software. Surgeons will know more about the patient’s anatomy, enabling them to offer a personalized joint replacement.

Nuance Communications (NUAN)

a visual representation of the data underlying an artificial intelligence (AI) powered solution
Source: Shutterstock

Nuance shares have risen steadily from sub-$15 lows to around $27. In its second quarter, the company posted organic revenue growth of 11% Y/Y. Enterprise revenue grew 19%, the highest in 10 years. Dragon Medical One is the flagship growth driver for Nuance; demand for that service grew 46% Y/Y.

Below, most analysts rate Nuance stock with a “strong-buy” recommendation:

Historical Ratings Strong Buy Buy Hold Sell Strong Sell Total
Current 5 0 2 0 0 7
1 Month Ago 5 0 2 0 0 7
2 Months Ago 4 0 2 0 0 6

Data courtesy of Stockrover

Nuance accelerated its AI innovation and continued the development of machine learning-based tools. This will improve the workflow and productivity in healthcare. Dragon Medical One contributed to the strong first half annual recurring revenue growth.

Nuance scaled its international markets by launching Dragon Medical One in five new European countries.  The product is a speech recognition cloud solution that will improve the productivity of healthcare workers. It securely captures the patient’s narrative and reduces the workload of clinicians.

The rise in telemedicine during the global pandemic will drive Nuance’s AI business higher.

Alphabet (GOOG)

letters spelling out google
Source: rvlsoft / Shutterstock.com

Google’s mandate for Deepmind is building products that “support care teams and improve patient outcomes.” Google has expertise in cloud storage, data security and app development. It will work to develop mobile medical assistants for clinicians.

Stock Industry S&P 500
Growth Score: 95 53 77
Sales Growth Next Year 20.70% 21.40% 11.70%
Sales 1‑Year Chg (%) 12.40% 4.10% 18.70%
Sales 3‑Year Avg (%) 18.80% 25.20% 13.40%
Sales 5‑Year Avg (%) 19.10% 22.90% 7.60%

Data courtesy of Stockrover

Alphabet’s growth will outpace the S&P 500 index over the next year. The 95/100 growth score suggests the stock will outperform markets, too, in the year.

In diagnostics, Deepmind will help healthcare workers detect eye disease from scans or assist in cancer radiotherapy treatment. More recently, Google’s pending acquisition of Fitbit will accelerate the search giant’s development of wearables in healthcare. And since these devices track the wearers’ health metrics, it will have plenty of user data to work with.

That volume of data will necessitate machine learning and AI to decipher any meaningful patterns. Without AI, Google cannot perform any initial diagnoses that may potentially save a wearer’s life.

Google hasn’t gotten the European Union’s blessing on the deal, and a full-scale investigation will delay the Fitbit acquisition. But should it clear, the company’s positioning in AI in healthcare will strengthen.

Alibaba (BABA)

Alibaba Group (BABA) headquarters sign located in Hangzhou China
Source: Kevin Chen Photography / Shutterstock.com

Alibaba has all the requisite backend systems in place for AI in healthcare. Alibaba Cloud has AI-powered solutions that are solving real-world problems. And BABA is solving healthcare problems by analyzing clinical and hospital operations.

The company said that the system uses 700 core indicators that come from medical institutions and regional medical operations. By feeding real-world data to the AI, the system will have higher accuracy and reliability. Its AI platform may perform image and voice recognition. Medical institutions get diagnosis support from Alibaba’s AI.

The real-world importance of Alibaba’s new AI system will save lives. The system has a 96% accuracy in detecting coronavirus in mere seconds. By contrast, it takes humans around 15 minutes to make a diagnosis.

The fair value of Alibaba stock is $325.72. The value score is low but the growth score is 100/100:

Fair Value $325.72
Value Score 61
Growth Score 100
Quality Score 97
Sentiment Score 90

Data courtesy of Stockrover

Alibaba trained the system to detect coronavirus by introducing images and data from 5,000 confirmed coronavirus cases.

Disclosure: As of this writing, the author did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2020/08/7-ai-stocks-to-buy-for-the-increasing-digitization-of-healthcare/.

©2020 InvestorPlace Media, LLC