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Apple, Google: Healthcare Stocks of the Future?

Apple (AAPL) has been under the gun lately to innovate and come up with its next big thing.

Some have wondered whether it will be a TV or a watch … but there is increasing evidence that research at Apple (and other gadget companies, for that matter) is more about health and wellness than high-tech fun.

Consider recent reports that AAPL stock execs met with the FDA recently to discuss mobile health apps for its iPhone and iPad. Or beyond Apple, consider the recent news that Google (GOOG) has developed a prototype contact lens with microprocessors that measure blood sugar in an effort to help manage diabetes.

Heck, take even the recent news that troubled video game giant Nintendo (NTDOY) might look for a new business model that focuses on health and wellness applications, building on the success of its Wii Fit that encouraged physical activity instead of couch surfing. Part of that reinvention is undoubtedly being spurred by Nintendo’s problems in conventional console gaming, but there’s also serious opportunity in the realm of health-focused games.

Countless small efforts to tap into high-tech health applications have popped up in the usual sports and fitness plays, from the Fuel Band from Nike (NKE) to the Armour39 from Under Armour (UA). But increasingly it’s clear that health is a high-tech enterprise … and companies like Apple and Google may be leading the way.

GOOG and AAPL: What’s in the Works

The sky is the limit when it comes to how high-tech companies tap into the potential of health-related sales in the years. After all, some of the biggest strides in modern medicine have been from high-tech companies innovating in hospitals and doctors’ offices.

Take Intuitive Surgical (ISRG), the poster child for space age medical technology with its da Vinci robotic surgery system. Shares are up about 300% in five years even after some softness in ISRG lately.

Another great example is Cardiovascular Systems (CSII), a small-cap medical device company that has created high-tech treatments for heart disease. CSII stock is up 700% since 2010.

Now, it might be beyond Apple and Google to create super-expensive medical devices like these to treat sophisticated ailments. And even if they do, there’s still bound to be competition and a labyrinth of FDA approvals and other regulations to navigate.

But the potential is there, even on a smaller scale. And if you’re a megacap tech stock with innovative designers of hardware and software, tons of cash on the books and a willingness to take chances on the next thing … why not healthcare devices?

There’s a lot of potential here. Current projects at Google, for instance, include:

  • The high-tech contact lens mentioned earlier as a way to monitor diabetes.
  • Calico, a new company that “will focus on health and well-being, in particular the challenge of aging and associated diseases.” It’s led by the former CEO of biotech play Genentech, which was acquired by Roche (RHHBY) in 2009 for almost $47 billion.
  • The recent acquisition of artificial intelligence firm DeepMind for upwards of $400 million, which will focus on “deep learning” technologies. Such potential has been deployed famously with IBM (IBM) and its Watson supercomputer, which has been touted as a way to reduce doctor errors and improve diagnoses.

Apple’s recent meeting with the FDA was secretive, but also hints at what AAPL has in the works. This, from USA Today:

“Rounding out the Apple team was Dr. Michael O’Reilly, a medical expert from the Universities of Michigan and California who used to be the Chief Medical Officer of Masimo Corp. Masimo develops medical devices and sensors, including the first-and-only FDA-cleared technology that continuously measures hemoglobin without a painful needle stick.”

Sounds awfully like the idea of Google’s contact lens that offers biometric potential in a minimally invasive and portable format.

Of course, there’s no way to know where modern medicine will take us and who will lead the charge. But given the early indications from AAPL, GOOG and other tech companies … don’t count them out.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

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