Who's Hot and Who's Not for 2013: Health Tech

Predicting the future is about as reliable as a ladder made of spaghetti. Nonetheless, this is the season where many of us tend to take a stab at predictions for the coming year. 

What will 2013 look like for health-care technology? Here are my picks for the hottest and not-so-hot stocks for next year.

Who's hot
There are several trends that appear likely to flourish in 2013 and beyond. One that shows no signs of slowing down is the push for technology at the point of care. This means more tablet devices are on the way for health care. 

While plenty of companies slug it out in the battle for tablet dominance, ARM Holdings (NASDAQ: ARMH  ) stands to come out a winner no matter which tablet emerges on top. Granted, ARM doesn't qualify as a pure health-care technology company. However, if we're looking at which companies should benefit the most from hot trends in health-care, ARM makes the list.

ARM licenses its chip technology to more than 300 companies. Its chips are used in most of the popular tablets. ARM's valuation is lofty with a forward P/E of 41 and a price/sales ratio of 19. The company does face several challenges as well. However, I think ARM should continue to be hot for 2013 at least.

Another health-care trend that seems unstoppable is movement toward new reimbursement approaches, such as payment bundling. These will require much tighter integration among different health-care settings. This trend seems to provide opportunities for companies that have systems extending into multiple care settings and the ability to analyze clinical data. Cerner (NASDAQ: CERN  ) stands out as a leader in this regard. 

Cerner's technology offerings include solutions for hospitals, physician practices, pharmacies, assisted living, skilled nursing, home health, and hospice. That list includes most of the major health-care providers. Cerner should be able to leverage this breadth of scope as more providers seek systems that tightly integrate with other provider settings.

The stock isn't exactly cheap, with a forward P/E of 28. On the other hand, that multiple is actually below the P/E range for Cerner over the past three years. I think the company's significant strengths in a growing market will keep it sizzling hot. 

Who's not
One company easily makes the list of who won't be hot in 2013: Allscripts (NASDAQ: MDRX  ) . To say that Allscripts had a bad year in 2012 would be putting it mildly. Shares for the health information solutions provider dropped nearly 40% over the last 12 months.

Even if Allscripts turns things around, I can nearly guarantee that it won't be a hot stock at the end of 2013. That's because the company plans to go private. Several private equity firms are reportedly bidding for the beleaguered company. 

Another stock that probably won't be hot in 2013 is WebMD (NASDAQ: WBMD  ) . Much of its revenue depends on advertising by pharmaceutical companies. Unfortunately for WebMD, that advertising took a dive as several blockbuster drugs went off patent. While the so-called patent cliff should subside in 2013 to some extent, it doesn't seem likely that those advertising dollars will come back quickly.

The company also faces the challenge of increasing access via mobile phones rather than through desktop computers. Monetization of advertising on mobile phones is an issue for many Internet companies. This trend especially hurts at a time when WebMD's revenue is already shrinking.

WebMD is taking aggressive action to cut costs, which is smart. Announcement of a plan to reduce its workforce sparked a 13% jump in shares earlier this week. However, cost-cutting alone won't land a company on anyone's hot stocks list. I love WebMD's web site and have its app on my phone and iPad. However, I just don't expect the stock to generate much heat in 2013.

Lukewarm
A company that I struggled with is Quality Systems (NASDAQ: QSII  ) . Like Cerner, it sells solutions across multiple health-care settings. But like Allscripts, Quality Systems made the Fool's worst health-care stocks of 2012 list. The stock could be poised for a great rebound in 2013, especially if it picks up lots of new business from customers preparing for the latest round of EHR requirements.

On the other hand, Quality Systems doesn't have the scale Cerner does. That could put it at a disadvantage going forward as health systems consolidate. Quality Systems also faces the risk of possible cash flow disruption if more customers opt for subscription pricing models rather than traditional software purchase alternatives.

Therefore, Quality Systems is my lukewarm pick for next year. I think it could go either way -- hot or not-so-hot.

Generating heat
I'll check back at the end of 2013 to see how well my predictions fared. Who do you think will be the hottest health technology stocks of the year? Give your thoughts in the comments section below.

Taking stabs at predictions can be fun, but the truly hottest investing approach is to choose great companies and stick with them for the long term. In our free report "3 Stocks That Will Help You Retire Rich," we name stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.


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