Data sets are getting larger and larger, and there’s a lot of useful information just waiting to be made sense of. Nowhere is this truer than in the health care industry.#-ad_banner-#      

Different hospitals have different platforms for managing data, which makes it exceedingly difficult to exchange information. Although it has been a slow process, the U.S. is moving toward a health care market that provides care more efficiently. Part of this includes implementing electronic health records and managing hospital costs.

The American Recovery and Reinvestment Act allocated about $20 billion for electronic health records. This portion of the act offers financial incentives to hospitals and physicians to adopt and use health care information technology. The other positive is that many organizations face penalties for non-compliance, starting in 2015.

With all this “reform” coming to the health care industry, one of the best ways to invest in the coming health care data boom is Allscripts Healthcare Solutions (Nasdaq: MDRX).

Yet the stock hasn’t been all that great to investors over the past couple of years. Thanks to a botched acquisition, MDRX is still down nearly 50% from its 2007 highs. The multi-year pressure was a result of the 2010 acquisition of Eclipsys that proved to be more trouble than it was worth.

On the bright side, Allscripts has made a number of key steps to better position itself for long-term growth. The company has been revamping its product image and boosting customer satisfaction, and is still one of the best plays in the acute and ambulatory care space.

This has been a year of transition for Allscripts. The CEO who orchestrated the Eclipsys acquisition is gone, and the company, which had been up for sale, says it has “unequivocally removed the ‘for sale’ sign from the front yard.” This undoubtedly will help the company focus on sales and a turnaround.

It appears Allscripts has learned its lesson on the acquisition front with its two most recent purchases, dbMotion and Jardogs. DbMotion is a software company that allows info sharing between health care providers; Jardogs provides patient kiosks and mobile tech for tablets and smartphones. Unlike the Eclipsys acquisition, these new deals are poised go a long way in ensuring Allscripts maintains positioning in its core products.

Earnings per share (EPS) this year is expected to come in at $0.27, down nearly 60% from 2012. However, Allscripts is expanding beyond the electronic health records market and tapping the population health market, which should help boost 2014 numbers. Allscripts’ population health solution helps provide analytics for high-cost diseases, such as heart disease and diabetes. Its data analysis helps physicians identify target populations and manage risk. This is a move to be more proactive (instead of reactive) with health care.

Consider this: There are some 130 million people in America who live with at least one chronic disease. The average medical cost per person is over $8,000 per year, while only $250 is spent on preventing medical conditions. So the market potential is there for Allscripts.

Risks to Consider: One of the biggest overhangs for Allscripts is related to customer adoption, especially considering that some might question the company’s financial viability. Yet Allscripts has strengthened its balance sheet: During its second quarter, Allscripts completed a $1 billion debt financing to help lower borrowing costs. This puts Allscripts’ liquidity at all-time highs.

Action to Take –> Buy Allscripts for upside to $20. If investors look at the long term, earnings could easily hit $1 per share, possibly as soon as fiscal 2015. At $1 per share, Allscripts deserves a price-to-earnings (P/E) multiple of 20, which is still a steep discount to the industry average of 28.

P.S. Have you heard about our Top 10 Stocks for 2014? Stock #10 is making a fortune from an aging population around the world. And business is booming — this medical company had a staggering 80 product launches in 2012 and sales of more than $20 billion. That sort of growth is why this company has raised dividends 580% since 1993. To learn more about this stock — along with the rest of our Top 10 Stocks for 2014 — click here.