Words can hardly express the pride a father feels when his child graduates college, gets his first job, and ... finally starts paying his own way. Today, I imagine IBM (NYS: IBM) is feeling such pride, as its "Watson" supercomputer enters the workforce. On Monday, IBM and WellPoint (NYS: WLP) announced that the health insurer has hired Watson to help its network of doctors diagnose illnesses and suggest treatment options.
Why this is news
For years, we've been hearing about how expanding use of technology was going to revolutionize health care and dramatically reduce costs. Quality Systems (NAS: QSII) and Cerner (NAS: CERN) were going to replace paper patient files with "electronic medical reports." Nuance Communications' (NAS: NUAN) speech-to-text tech would transfer doctors' words immediately into these electronic files.
I don't know about you, but I haven't seen either of these things happen in any of the doctors' or dentists' offices that I frequent. But perhaps that's because the medical professionals who are supposed to charge less as they benefit from these technologies aren't quite convinced of the savings -- while they're very aware of the cost to implement these systems. If that's the case, though, perhaps Watson is the kind of medical technology that might actually succeed.
WellPoint, you see, isn't a doctor. It's an insurer that pays doctors. As such, it's particularly motivated to find ways to reduce costs. As evidence of which, it's said to be paying both "over time," and also "up front" for access to Dr. Watson.
Why this is bignews
From an investor's perspective, this is really big news. IBM stock already looks attractively valued, you see. The shares sell for just 13 times earnings but pay a 1.9% dividend and are pegged for 12% growth. That's a fair price by any measure.
But according to IBM, Watson has the potential to grow into a $1 billion-a-year business as rival insurers such as UnitedHealth Group (NYS: UNH) and Aetna (NYS: AET) , and perhaps even actual medical practices, begin to sign up. That would add a full percentage point to IBM's growth rate. And since WellPoint is IBM's first-ever commercial customer (Jeopardy! winnings don't count) for Watson, this is a percentage point that analyst's aren't yet figuring into their calculations for IBM's growth. A percentage point Mr. Market isn't yet charging you for. Free money.
This, Fool, is big news -- and potentially big profits for IBM shareholders.
Will Dr. Watson deliver on its promise? Add IBM to your Fool Watchlistand find out.
At the time thisarticle was published Fool contributorRich Smithdoes not own shares of, nor is he short, any company named above.The Motley Fool owns shares of UnitedHealth Group and IBM.Motley Fool newsletter serviceshave recommended buying shares of Nuance Communications, WellPoint, UnitedHealth Group, and Quality Systems and creating a diagonal call position in UnitedHealth Group.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy.
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