Care to try a piece of a $29 billion pie? I'd settle for a relatively small sliver when the treat's that big. Unfortunately, not everyone's in the right business to receive a slice, but those who are stand to profit considerably
IN PICTURES: Eight Ways To Survive A Market Downturn

Vital Stats
Imagine an industry that averaged double-digit earnings growth over the past 12 months, with a few of its brightest stars making triple-digit income leaps. Now imagine a repeat of that growth over the next 12 months, only this time with an official backing from the Obama administration.

No, it's not a dream, and I'm willing to bet that many of you have already figured out that I'm talking about part of the President's healthcare reform agenda. Specifically, the goal of transitioning from a paper-based system to a completely electronic system with the intent of greater efficiency, in order to eat away at some of the $29 billion in inefficiencies. Many investment opportunities have been created as a result of this proposed change.

One Way or Another
As is stands right now, it's not likely that the Obama administration will be able to overhaul the other part of the healthcare agenda, which is the creation of a government-managed "co-op" type of insurance plan.

The other aspect of the reform though - the digitalization of all your medical data - is coming. Sooner or later, one way or another, it's coming. See, the money's already been allocated; $19 billion was earmarked for computerized medical records as part of the Economic Recovery Act (though no specific piece of hardware, software, or system was in mind, which you've got to love if you're a solutions provider).

And, even without the government mandate, the healthcare industry knew its inefficiencies had to be solved.

U.S. healthcare expenditures were $2.2 trillion in 2007, and are expected to grow 6.2% annually. Good news for healthcare? Not really - as costs increase, providers either price themselves out of business, or much of the incremental additional revenue ends up being susceptible to bad debt or fraud (or both).

Here's the rub: in 2008, it's believed that $150 billion (7% of all healthcare spending in the United States) was spent by payers and providers just on billing and insurance administration-related activities. Can you see where I'm going with this? The system is not working.

A handful of companies that were brought to light by a recent IPO, however, may be able to get a grip on soaring healthcare administration costs. Better still, they'll be able to make a few bucks for themselves - or their investors - along the way.

A Short But Sweet List
As mentioned above, the Recovery Act has already allocated billions to make this nation's healthcare administration an all-electronic affair - now the government just needs to pick a solution/system. Even if the reform act's all-digital plan never materializes, the industry is still headed that direction on its own terms.

Though there are a few conglomerates tiptoeing into the medical billing and revenue cycle management space, I think the handful of 'pure' plays offer the best way to tap this expanding opportunity. In no particular order, I'd suggest taking a real close look at:

Emdeon Inc. (NYSE: EM) had an IPO recently, but is hardly a new company. The company's been profitable in its current form for the last three years, and is on pace to make it four in a row in 2009.

It's an expensive stock. With more than 88 million shares outstanding, the market cap's around $1.5 billion. Annualizing the 13.6 million earned in the first six months of the year, the P/E becomes 55. However, the potential earnings growth here more than offsets the expense.

Cerner Corp. (NASDAQ:CERN) is like the gold standard when it comes to healthcare administration systems. The company boasts a trailing 12-month P/E of 26.3, and a 12-month EPS growth rate of 41.1%.

MedAssets Inc. (NASDAQ:MDAS) is another wildly expensive stock, but also possibly worth it, as the company's grown income at a triple-digit pace over the last year.

Eclipsys Corp. (NASDAQ:ECLP) is the only 'value-priced' name in the bunch, trading at 11-times earnings. The market's likely worried - and rightfully so - about last quarter's decline in revenue as well as the decline in operating income.

Computer Programs and Systems Inc. (NASDAQ:CPSI), like most of the companies mentioned, has a double-digit earnings growth rate (21.0%) over the last twelve months that speaks for itself.

Bottom Line
So that's it - five hot targets for the coming wave of healthcare IT demand. Wall Street Transcript recently published an article suggesting that 55% of the industry's record keeping and administration would be digital by 2014, versus only 10% now; that spells opportunity. (Read more about the healthcare sector in our article Investing In The Healthcare Sector.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  2. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  3. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  4. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  5. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  6. Stock Analysis

    Top 3 Stocks for the Coming Holiday Season

    If you want to buck the bear market trend by going long on consumer stocks, these three might be your best bets.
  7. Investing News

    Could a Rate Hike Send Stocks Higher?

    A rate hike would certainly alter the investment scene, but would it be for the better or worse?
  8. Investing News

    Corporate Bonds or Stocks: Which is Better Now?

    With market volatility high, you may think it is time to run for corporate bonds instead of stocks. Before you do take a deeper look into which is better.
  9. Mutual Funds & ETFs

    Using Short ETFs to Battle a Down Market

    Instead of selling your stocks to get gains, consider a short selling strategy, specifically one that uses short ETFs that help manage the risk.
  10. Investing Basics

    How to Diversify with International Stocks

    Diversifying with international stocks can benefit most portfolios, but beware of country risk.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!