Now that all the key deadlines for Obamacare have finally taken effect, a lot of tech investors are busy trying to figure out how this will affect their portfolios.
It's easy to see why. This is the largest and most fundamental change to hit the healthcare sector in decades.
Not only that, but Wall Street is currently trying to pick the winners from the losers - and frankly isn't doing a particularly good job of it.
Fact is, Obamacare is at least partly responsible for some of the biotech sector's recent sell-off...
The Government Hammer Falls on Biotechs
For example, industry analysts recently cited the impact of a letter sent last month by several House members questioning the price of a blockbuster drug used to treat hepatitis C.
The issue was the cost of Sovaldi, a drug sold by Gilead Sciences Inc. (Nasdaq: GILD). Solvaldi costs $84,000 a year but is a godsend to patients because it helps prevent the need for a liver transplant that costs some $250,000 - assuming you can find a donor organ.
That missive roiled the biotech sector because many investors feared politics in advance of the mid-term elections might affect other medical technologies.
I think that's a classic overreaction in a jittery market. But it does bring up a very important point.
What investors really need to look for are stocks that are what I call "Obamacare-proof."
By that I mean we need to find companies that will profit over the long haul whether Obamacare remains in effect or not.
Let's assume for the moment that the Republicans hold the House and take the Senate this November and capture the White House in 2016. And let's further assume they gut the Affordable Care Act.
Even in that scenario, there is one sector that will continue to do well. The reason is that we'll still need a key piece of technology that can help rein in rising healthcare costs no matter what the political landscape looks like.
That's why an area broadly defined as healthcare information technology (IT) services will continue to play a crucial role in America's future.
So, today I want to examine this sector in some detail. First, I want to look at examples of new IPOs in the space. Then, to give you a heads up on long-term profit plays, I'm going to identify two promising startups on an IPO track.
And then I'll conclude by identifying what I think is one of the better Obamacare-proof stocks out there today.
So let's get started by looking at those two recent health IT public offerings.
Public Offering No. 1
Enterprise Healthcare Software
Castlight Health Inc. (NYSE: CSLT) is a leader of enterprise healthcare software. It operates a web platform that assists patients in understanding various aspects of their healthcare benefits, including coverage, costs, and preferences.
Founded in 2008, the San Francisco-based company's March IPO was one of the more highly anticipated new issues so far this year. It did not disappoint, quickly jumping almost 150% to around $40 a share, and raising $178 million.
Leading up to its market debut, the stock had a series of price upgrades, but eventually landed at $16 a share. At its peak, the stock's market cap was around $3 billion.
No doubt, it has given up nearly all of its gains during the tech sector's retreat. But at deadline it was still trading above its entry price and poised to go higher.
Public Offering No. 2
Digital Health & Wellness
Meantime, Everyday Health Inc. (NYSE: EVDY) is a health and wellness digital media company. Its portfolio includes some of the most popular health and wellness websites on the Internet, including MayoClinic.org and JillianMichaels.com. It also hosts PC and mobile apps for counting food calories and tracking fitness activities.
In total, the company operates 25 websites and 31 social media accounts. According to Fortune, one-third of U.S. physicians used Everyday Health's services in 2013, while 132 million unique visitors accessed the company's websites.
Everyday Health launched its offering in March at $14 a share, raising more than $110 million, and is trading right near that level.
But remember, we're not focused on the daily market action. We're looking at this area as playing a vital service for doctors, patients, and government agencies for many years to come.
That's why investors would do well to put two private companies in the sector on their radar screens. Both are getting a lot attention from venture capital firms and look like great candidates for successful IPOs.
Lock In on These Two Companies, Pre-IPO
Take the case of MindBody Inc. This is a provider of online marketing tools for clients in the health, wellness, and beauty industries. The company offers a suite of tools including networking capabilities, scheduling software, website analytics, and point-of-sale systems.
Over 33,000 businesses in 100 countries have used MindBody's marketing tools. Its MindBody Connect mobile app is also immensely popular with health and wellness practitioners.
Inc. magazine has ranked MindBody as one of the fastest-growing companies for the last six straight years. And from a funding perspective, there has been considerable venture capital money being funneled into MindBody, including $50 million from Montreux Equity Partners and Bessemer Venture Partners.
For its part, MedHOK Inc. offers software and cloud-based solutions to aid with everything from healthcare plans to specialty pharmacies. MedHOK has an extensive range of services it provides through one main platform, which gives the company a competitive advantage in the health IT sector.
By providing software-as-a-service, MedHOK offers its clients essential programs based in the cloud. The company has garnered upwards of $77.5 million in venture capital funding from firms like Bain Capital Ventures and Spectrum Equity.
Pick This Winner for Any Market
Now then, as much as we like several companies in this space, we think investors would do well to take a close look at IMS Health Holdings Inc. (NYSE: IMS).
The company remains the world's leading provider of sales and market research data to companies in the healthcare industry. It is a Big Data firm working exclusively in the healthcare industry and has shown stability in its financials and price performance.
From doctors and clinical researchers, to hospitals and biopharmaceutical companies, IMS Health supports the industry by providing the necessary data to benefit organizations and patients. The company does so by linking more than 100,000 data suppliers and working with over 9,500 healthcare professionals in 100 countries.
IMS stores patient data securely and anonymously in the cloud while processing over 45 billion healthcare transactions each year. The company's recent IPO at $20 a share raised more than $1.3 billion.
But this is a company and stock with enormous upside potential. IMS posted a profit of $82 million, with $2.5 billion in sales for 2013. That's a profit performance for a growth company that has recently gone public.
Over the long run, IMS should continue to do well. It has the right products for the right market at a time when the nation needs to stem the rise in healthcare costs.
So, investors who can look beyond the market's sell-off should do extremely well with this great Obamacare-proof stock.
About the Author
Michael A. Robinson is a 36-year Silicon Valley veteran and one of the top tech and biotech financial analysts working today. That's because, as a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs, scientists, and high-profile players. And he brings this entire world of Silicon Valley "insiders" right to you...
- He was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon.
- He was there as Lee Iacocca and Roger Smith, the CEOs of Chrysler and GM, led the robotics revolution that saved the U.S. automotive industry.
- As cyber-security was becoming a focus of national security, Michael was with Dave DeWalt, the CEO of McAfee, right before Intel acquired his company for $7.8 billion.
This all means the entire world is constantly seeking Michael's insight.
In addition to being a regular guest and panelist on CNBC and Fox Business, he is also a Pulitzer Prize-nominated writer and reporter. His first book Overdrawn: The Bailout of American Savings warned people about the coming financial collapse - years before the word "bailout" became a household word.
Silicon Valley defense publications vie for his analysis. He's worked for Defense Media Network and Signal Magazine, as well as The New York Times, American Enterprise, and The Wall Street Journal.
And even with decades of experience, Michael believes there has never been a moment in time quite like this.
Right now, medical breakthroughs that once took years to develop are moving at a record speed. And that means we are going to see highly lucrative biotech investment opportunities come in fast and furious.
To help you navigate the historic opportunity in biotech, Michael launched the Bio-Tech Profit Alliance.
His other publications include: Strategic Tech Investor, The Nova-X Report, Bio-Technology Profit Alliance and Nexus-9 Network.