Healthcare in Your Pocket
By Fri, Nov 20, 2020
It’s easy to see why some investors would prefer to sit on the sidelines right now than invest in the market. The U.S. economy dipped into recession during the second quarter in response to COVID-19 lockdowns, and now we are seeing those lockdowns emerge again in some states as case numbers begin to scale higher. Moreover, as I write this, the outcome of the U.S. general election has still not been called officially. On top of all that, the S&P 500 is trading at or near new all-time highs, with valuations reaching into historically high levels.
These reasons likely explain why investments in money market funds hit an all-time high back in May ($4.8 trillion) and are still at levels ($4.5 trillion) way above the previous historic peak back in January of 2009 of $3.8 trillion. Here’s the thing: all those funds are only earning about 1% per year, which isn’t even enough to beat inflation. Sooner or later, that dam will burst, and we’ll see money come flooding back into stocks in a big way.
Let’s get ahead of that curve, shall we? While there are plenty of places where we can beat the pittance paid by money market funds, I’m looking for a company with accelerating growth and strong future prospects that is expected to stay strong over the next year or more. One company that fits the bill is Teladoc Health (NYSE: TDOC).
Teladoc came to my attention when I noticed it showing up on the list of new buys from Cathie Wood’s outfit, Ark Invest. Wood is the founder and CEO of the fund and financial analysis company, and each of her family of ARK funds (ARKK, ARKG, ARKW, ARKQ) is in the top 2% of tech funds by performance, with three of the four showing a 3-digit-plus annual return. (Three weeks ago, I recommended another Cathie Woods-inspired pick in Wealth Protection Research. Since then, Unity has risen 22.6% through Thursday, more than double the broader market’s 9.5% gain.)
For the last reported quarter, Ark’s flagship fund, Ark Innovation (ARKK), held no shares of TDOC. But over the past two weeks, according to ARK’s own internal memos, Wood has taken a stake large enough to put it into the top third of her holdings.
Teladoc Health, founded in Purchase, New York, in 2002, is at the forefront of what I call the “health-care-in-your-pocket” trend – the lockdown-inspired practice of providing healthcare virtually, where doctors and other health care providers connect with patients through a phone app or online meet-up software.
Teladoc provides the platform and software for doctors and health care providers to communicate with and record the health data of patients, and the mobile/desktop/phone apps patients need to connect with their doctors and health care providers.
This is a booming business. Over the past year, Teladoc brought in $867 million in revenue. The company is not quite profitable. However, earnings – as measured by a negative number moving higher — have been not only growing but accelerating in recent quarters, as compared with the comparable year-earlier periods: Q3 2019: +27%; Q4 2019: +41%; Q1 2020: +85%; Q2 2020: +109%
These are truly stellar numbers, and clearly the trend is up. At this rate, according to analysts, the company will be profitable by the end of 2021. But let’s look at some more numbers.
The average rating among the 16 analysts that cover Teladoc is “strong buy.” The current price consensus is $253.75, a full 33% above the current price. But what is really stunning is that 15 of the 16 analysts hold the coveted 5-star rating from TipRanks.com. This means that they are in the top 1% of analysts among the more than 14,000 finance professionals TipRanks covers, based on strength of accuracy and the return on investment of their picks.
If we drill down into some of these recommendations, we see that Robert Baird likes the stock on valuation (November 13). JPMorgan upped its price target to $266 for the same reason and gave the stock an “overweight” rating (October 30). We find similar sentiment coming from analysts at Deutsche Bank (October 29), and the Royal Bank of Canada (August 21).
But here is the real reason to add Teladoc Health to your growth portfolio…
While the pandemic lockdowns were a tailwind for telemed services, this will be less of a factor next year, with the advent of a vaccine. However, it is clear that both doctors and patients find the telemed option to be a good fit in any event. It saves the patient money, it saves the doctor time, and it is safer than office visits should another pandemic emerge. Fortune Business Insights estimates that telehealth revenues will reach $559.5 billion by 2027, reflecting a huge compound annual growth rate of 25.25%.
Action to Take: Consider buying TDOC under $200 with a view to selling at $250.
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About the Author
Dr. Thomas Carr (aka “Dr. Stoxx”) is the founder, CEO and Chief Market Strategist for Befriend the Trend Trading, LLC, which oversees the "Dr. Stoxx" brand of stock-picking newsletters (DrStoxx.com) and trader training resources. Dr. Carr has been active in the markets since 1996. Along the way he authored four bestselling books on the stock market that have been translated into Chinese, Korean, and Japanese.
