The novel coronavirus pandemic has resulted in fundamental changes in several sectors of the economy and the efficiency of the healthcare sector has been in focus. One response saw telemedicine use increase, highlighting telehealth stocks.
The Harvard Gazette quotes John Dalrymple, an associate dean at Harvard’s medical school, saying “that we’ve gone from zero to 60 on the telemedicine front. I think we’ve been talking about it as a concept, but then once the pandemic came, it was amazing how quickly everything geared up.”
In addition, the $2 trillion aid package passed by Congress in March “includes $340 billion in new government appropriations, much of which will go toward government telework, telehealth, cybersecurity, and network bandwidth initiatives.”
“The pandemic has made it imperative to have more innovation in online education, telemedecine, virtualization of at least some types of services,” professor Anjana Susarla at the MSU Broad College of Business says in an e-mail to InvestorPlace. “These are all areas where cutting edge technologies and artificial intelligence methods are being used.”
Be it the government or private sector, there is a push to accelerate telehealth. With the approaching flu season, the demand for telehealth is likely to continue in the U.S. It’s not surprising that telehealth stocks have been in the limelight.
This column discusses three telehealth stocks that are worth considering for the near and long term. I believe that televisits will continue to increase even after the pandemic is controlled. The global telehealth market is expected to reach $55.6 billion by fiscal year 2025 from $25.4 billion in the current year.
Here’s a look at telehealth stocks that can be portfolio value creators.
3 Telehealth Stocks: Teladoc Health (TDOC)
TDOC stock is my top-pick among telehealth stocks. The stock is an out-performer having surged by 217% in the last year. While some profit booking is likely, the stock should be on the radar to buy on dips.
In terms of catalyst for upside, I believe that the company’s merger with Livongo (NASDAQ:LVGO) will deliver long-term value creation. Teladoc has already established itself among the leading players in the telehealth market. The company’s revenue has grown at a CAGR of 67% in the last five years with healthy client retention.
The merger with Livongo will enhance the company’s technological capabilities significantly. Livongo has been using artificial intelligence for deep consumer insight, differentiated consumer experience and cost savings.
Further, the merged entity will expand presence to 175 countries. Clearly, the business combination is likely to be positive for shareholders. I believe that strong revenue and EBITDA growth will sustain for the coming years. This makes TDOC stock worth considering for the core portfolio as the telehealth industry expands.
American Well Corporation (AMWL)
AMWL stock was listed in September 2020 after a successful initial public offering. American Well is a pure play in the telehealth business. I am bullish on the stock for the coming years.
In terms of recent growth, the company reported 40,000 visits per day in April. In April 2019, the visits per day was 2,900. This is an indication of growth driven by Covid-19. As the company’s platform utilization remains robust, top-line and earnings growth will take AMWL stock higher.
Additionally, the company is looking at international opportunities. The company has made inroads into Israel. Strategic relationships are likely to help it enter more regions.
Its also worth noting that Alphabet (NASDAQ:GOOG) has invested $100 million in the company. As a part of the partnership, American Well “will move parts of its business from Amazon Web Services, which it currently uses, to Google Cloud.”
The partnership is significant as the company has a strong financial backing. Given the telehealth industry growth outlook, this might just be the first investment by Alphabet in the company.
Humana (HUM)
Humana is not a pure play in the telehealth industry. However, I believe that the company is making the right moves to benefit from the growing telehealth industry. This makes HUM stock attractive.
The company’s stock has climbed 49% in the last six months. Any correction would be an opportunity to accumulate HUM stock, which also has an annual dividend of $2.50.
Specific to telehealth, Humana invested $100 million in a telehealth start-up Heal in July. This partnership will allow Heal to expand into new markets. For Humana, the benefit is delivering in-home primary care service to its customers.
Humana CEO Bruce Broussard believes that telehealth will create a “different healthcare system after the virus.” I would not be surprised if Humana makes bigger investments in telehealth.
As the company’s home-care business expands, I believe that HUM stock will continue to trend higher. At a forward price-earnings-ratio of 21.3, HUM stock is attractive.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector. As of this writing, Faisal Humayun did not hold a position in any of the aforementioned securities.
