The Future of Healthcare: 3 Stocks to Watch

By Markets Fool.com

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Source: Roche.

Where is healthcare headed? The answer -- or more precisely, the answers -- to that question hold the power to create fortunes over the coming years. And while no one can predict with 100% certainty where healthcare is headed, there are some trends likely to become increasingly more important.

The good news for investors in the here and now is that a handful of companies stand out as leaders in these areas. Here are three stocks to watch that could very well play key roles in the future of healthcare.

1.Roche Holding AG If you haven't heard of personalized medicine yet, you will soon. The idea is to customize medical treatment to the specific needs of a patient. Imagine, for example, a drug designed to match up with your specific genetic profile to most effectively combat a disease. You won't need a great imagination for this, because personalized medicine is already available.

Swiss healthcare company Roche currently ranks as the leader in the personalized medicine space. Roche made personalized medicine the core of its strategy back in 2006 and has achieved notable progress in targetingHER2-positive breast cancer with drugs including Herceptin, Perjeta, and Kadcyla.

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Source: Roche.

Roche maintains a star position in the world of personalized medicine in large part because it has two business segments that work closely together -- pharmaceuticals and diagnostics. Diagnostics is important because to know whether or not a drug targeting a specific genetic biomarker will help a patient, a physician must first know if the patient has that biomarker.

Despite its pioneering research in personalized medicine, that leadership hasn't payed off yet for Roche investors. Its stock stands 6% lower than the share price from one year ago (as well as five years ago and 10 years ago). Over the long run, though, Roche should experience better results as its personalized medicine investment pays off.

2.iRobot
Another game-changing healthcare technology has been around for quite a while. Telemedicine got its start over four decades ago, with hospitals using technology to reach patients in remote areas. However, regulatory and reimbursement obstacles held back the use of electronic exchange of medical information to treat patients remotely. That is changing now in a major way.

Source: iRobot

Plenty of companies offer telemedicine products, but one of the most intriguing is iRobot. The company is probably best known for its Roomba vacuuming robots. However, iRobot seems poised to play a key role in the future of healthcare with its RP-VITA remote presence robot.

RP-VITA was developed by iRobot in partnership with In Touch Health. The robot can self-navigate through hospitals and other healthcare facilities and allows physicians, nurses, and pharmacists to consult with patients remotely. RP-VITA also supportsdigital stethoscopes, otoscopes, and ultrasound imaging that can be used to gather patients' clinical information for review by medical professionals at another location.

As cool as this technology might be, though, it hasn't generated a tremendous amount of money for iRobot so far. Roomba and other home robots drive around 90% of revenue for the company and will probably continue to do so for the next few years.

However, the use of healthcare robots like RP-VITA and its successors should increase significantly. Don't be surprised if many homes have caregiver robots that connect to remote clinicians within the next 20 years. At this point, iRobot looks to be the most likely leader for this emerging trend.

3.IBM
The practice of medicine requires extensive knowledge of human anatomy and physiology, diseases, and appropriate treatments. Thanks to continued research and innovation, the amount of clinical knowledge to master is growing at a frantic pace. Meanwhile, the U.S. is poised to facea physician shortage of up to 90,000 doctors by 2025, according to the Association of American Medical Colleges. This sounds like a perfect challenge for artificial intelligence.

IBM has taken up this challenge in a more ambitious way than perhaps any other company. Big Blue's Watson first gained fame by beating human contestants on the TV game show Jeopardy!. Watson's greatest opportunity, though, might be in healthcare.

Source: IBM.

Watson was designed to learn similarly to how humans learn. It reads millions of documents in just seconds. Human experts train Watson on how to interpret all of that information. Watson can then help evaluate the information and assist in decision making.

IBM's cognitive computing technology is already in use at Memorial Sloan Kettering Cancer Center. Watson pores through vast quantities of information, including patient data, scientific journals, and medical meetings. Memorial Sloan Kettering clinical experts have been training Watson to make sense of all of this information, with a special focus on breast and lung cancers. Over time, Watson should become increasingly more effective at helping physicians determine the most effective evidence-based treatment options for patients.

The potential for Watson to impact care for patients is enormous. It's still too early for the technology to make a meaningful financial impact for IBM, but if we could peer into the future, I suspect we'd find a different picture altogether. IBM, the granddaddy of technology stocks, could very well be one of the most influential healthcare players over the next few decades.

Clear and present opportunity
While all three of these companies could become huge winners as the future of healthcare becomes reality, one stands out as the best pick for right now. IBM boasts a relatively low valuation and pays a solid dividend, currently yielding 3.1% annually. Big Blue's stock might not be red-hot right now, but it appears to be a smart buy. And the future awaits.

The article The Future of Healthcare: 3 Stocks to Watch originally appeared on Fool.com.

Keith Speights has no position in any stocks mentioned. The Motley Fool recommends iRobot. The Motley Fool owns shares of International Business Machines and iRobot. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.