From prevention and diagnosis of illnesses to treatment and how healthcare is delivered, digital and mobile technologies are becoming part of the medical landscape. The digitization of healthcare includes electronic patient records, telemedicine, e-prescriptions, and payments. Since the start of the pandemic, it has become one of the new digital trends to tele-visit a health professional for a consultation.
A large number of healthcare organizations now employ chief medical information officers, acting as bridges between medical and information technology (IT) departments. Cloud-based platforms and artificial intelligence (AI)-based tools are also gaining importance as more healthcare companies use data in their offerings. Therefore, today’s article introduces seven tech stocks that are also becoming healthcare stocks.
Recent research led by Daniel Clark of Nottingham University Hospitals NHS Trust, U.K., highlights, “New technologies have the potential to revolutionize the way we manage health and wellbeing now and in the future. … Modern healthcare is ever more dominated by technologies: technology has a role in hospitals and in community settings; in acute episodes and chronic care and indeed technology can be used to prevent people becoming unwell in the first place and help us all live longer, healthier lives.”
McKinsey reports, “Established companies in the life sciences, technology, and retail sectors are among the businesses entering the digital health market, along with thousands of start-ups. All seek to create value by applying technology to address the current issues in the delivery and management of healthcare.”
Many analysts concur that within this new decade, technology and data will supercharge the healthcare industry. Hospitals, doctors and pharmacies will become more connected. And consumers will have a large number of apps and software available to take charge of their health. We will witness AI analyzing our scans to identify diseases, predict outcomes, and suggest treatment.
Against that backdrop, here are seven tech stocks that might deserve a place in portfolios as healthcare stocks, too:
- Alibaba (NYSE:BABA)
- Apple (NASDAQ:AAPL)
- Baidu (NASDAQ:BIDU)
- Cerner (NASDAQ:CERN)
- Global X Telemedicine & Digital Health ETF (NASDAQ:EDOC)
- Health Catalyst (NASDAQ:HCAT)
- Palantir Technologies (NYSE:PLTR)
Tech Stocks: Alibaba (BABA)
52-Week Range: $185.41 – $319.32
1-Year Price Change: Up about 18%
Chinese group Alibaba is best known as an e-commerce and, increasingly, a cloud computing company. In online shopping, it has around a billion global annual active consumers, including about 800 million consumers in China and 200 million outside China. But its healthcare focus is also becoming increasingly important for the group.
Alibaba’s management highlights, “Alibaba Cloud is committed to apply data intelligence to help doctors and nurses offer better healthcare services to patients and ultimately save more lives.” Alibaba is also putting resources into the Internet of Things (IoT) with applications in healthcare, including the digitization of medical information and processes.
Finally, Alibaba has a controlling interest in Alibaba Health Information Technology (OTCMKTS:ALBHF), which provides digital solutions for the medical and pharmaceutical industry. In recent months, it has partnered with Servier China and Merck (NYSE:MRK) to offer consumers and patients better access to healthcare.
Alibaba released fiscal year 2021 third-quarter results in early February. Revenue was $33.88 billion, up 37% year-over-year (YoY). Non-GAAP net income came at $9.07 billion, up 27% YoY. EPS was 42 cents, an increase of 21% YoY. As of the end of 2021, free cash flow stood at $14.74 billion.
BABA stock’s forward price-earnings and price-sales ratios are 19.3 and 6.47, respectively. In the coming weeks, a potential decline toward $200 would improve the margin of safety for buy-and-hold investors. As the world’s most populous nation, developments in China are likely to make headlines in the coming quarters.
Apple (AAPL)
52-Week Range: $59.22 – $145.09
1-Year Price Change: Up about 92%
Apple, the most valuable company in the S&P 500, is best known as a consumer electronics group. However, in recent years, it has taken big steps in healthcare, too. Now, management claims, through its hardware and software, Apple makes “healthcare more personal.” For instance, its Apple Watch has an electrocardiogram (ECG), recording the user’s heartbeat and rhythm. It also has medical clinics for its own employees.
CEO Tim Cook has recently said he “wants to make health and wellness the company’s greatest legacy.” Therefore we’re likely to witness new offerings from the company in the months to come.
On Jan. 27, Apple announced financial results for its fiscal 2021 first quarter ended Dec. 26, 2020. It posted all-time-high revenue of $111.4 billion, up 21% YoY. Net income increased to $28.8 billion, or $1.68 per diluted share, compared to net income of $22.2 billion, or $1.25 per diluted share in the prior year period. The group generated record operating cash flow of $38.8 billion during the quarter.
AAPL stock’s forward P/E and P/S ratios are 28.33 and 7.16. Given the approaching earnings season, Apple shares are likely to be volatile. Any downward move toward $115 would offer a better entry point for long-term investors.
Baidu (BIDU)
52-Week Range: $90.94 – $354.82
1-Year Price Change: Up about 115%
Our next stock, Baidu, also comes from China. It is an AI group with a robust internet foundation. It is currently China’s largest search engine. Baidu also has the largest portfolio of AI patents and patent applications in the country. As early as 2016, management launched “Medical Brain,” bringing together AI, big data, and machine learning with the aim of delivering healthcare solutions across China.
Wenyisheng is Baidu’s online medical doctor platform handling hundreds of thousands visits a day. The company is currently working on a AI-based biotechnology healthcare startup, to diagnose diseases, discover new drugs and produce biological innovations.
Baidu announced Q4 and full year metrics in mid-February. Revenue was $4.64 billion, up 5% YoY. Non-GAAP net income came at $1.05 billion, a decline of 25%. Diluted earnings per share was $3.08.
BIDU stocks’s forward P/E and P/S ratios are 20.83 and 4.47, respectively. Interested investors could regard a fall toward the $190 level as a better entry point. Like Alibaba, BIDU stock also needs to be on your radar if you believe in the growth of AI-powered health solutions, especially in China.
Cerner (CERN)
52-Week Range: $59.61 – $84.20
1-Year Price Change: Up about 14%
From large-capitalization (cap) businesses, our discussion moves to a smaller technology company. The Kansas City, Missouri-based Cerner provides healthcare IT solutions, aimed at helping clinicians make care decisions. Cerner also offers electronic health record (EHR) solutions to healthcare organizations to support their clinical, financial and operational needs. The group was founded in 1979.
In August 2020, management announced it was partnering with Amazon (NASDAQ:AMZN) regarding wearable technology. Cerner cited, “The Amazon Halo, a new service dedicated to helping customers improve health and wellness, can connect to Cerner’s technology where individuals can opt-in to share activity, sleep, body fat percentage and other important wellness data from the comfort of their home.” Investors in CERN stock welcomed the news.
The company released its Q4 2020 financials on Feb. 10. Its revenue came at $1.4 billion, down 3%. Bottom line was $241.2 million, up 1.7%. Diluted EPS grew by 4% YoY and was 78 cents. At the end of 2020, free cash flow stood at $396 million.
CEO Brent Shafer cited, “Cerner’s fourth quarter results reflect a very solid finish to the year. … As a result of our progress in 2020, we enter 2021 well-positioned to deliver increased value to our clients while also driving profitable growth for shareholders.”
In 2021, management expects to generate $1.37 billion-$1.42 billion in revenue in Q1 and $5.75 billion-$5.95 billion during the financial year. CERN stock’s forward P/E and P/S ratio stand at 22.88 and 4.07. CERN’s market cap of $22 billion indicates that the company is likely to grow further.
Global X Telemedicine & Digital Health ETF (EDOC)
52-Week Range: $15.20 – $23.04
Price Change since July 2020: Up about 19%
Expense Ratio: 0.68% per year, or $68 per $10,000 invested annually
Our next discussion focuses on an exchange-traded fund (ETF), namely the Global X Telemedicine & Digital Health ETF. The fund invests in global businesses in telemedicine, healthcare analytics and connected healthcare devices. The fund started trading in July 2020.
With 39 stocks, EDOC tracks the Solactive Telemedicine & Digital Health Index. Most of the businesses are currently U.S.-based (82.6%), followed by Hong Kong, Japan, China, the Netherlands, Germany and Austria. The top 10 companies comprise over 40% of net assets, which stand at $804 million. Nuance Communications (NASDAQ:NUAN), Omnicell (NASDAQ:OMCL), Illumina (NASDAQ:ILMN) and Laboratory Corporation of America (NYSE:LH) lead the names.
Telehealth is not a new concept. The history of the American Telemedicine Association (ATA), a non-profit association headquartered in Washington D.C., goes back to 1993. According to ATA, more than half of U.S. hospitals have a telehealth program. These technology-enabled healthcare services range from assessment to monitoring, education, and prevention. Markets in 2020 put the limelight on telehealth companies as the digitalization trend became the norm.
This ETF deserves to be on your watchlist for telehealth stocks. Many of the companies in the fund are likely to continue increase revenue and grow, possibly double-digits. However, a potential decline toward $17 would offer a better entry point.
Health Catalyst (HCAT)
52-Week Range: $23.62 – $55.07
1-Year Price Change: Up about 79%
Our next stock is a small-cap name. The Utah-based Health Catalyst provides data and analytics technology and services to healthcare organizations for improving their clinical and financial operations. Patient records and clinical data are crucial for healthcare organizations. HCAT’s platform enables them to store and manage all data on its single platform. As a result healthcare providers can better manage and analyze the data.
The group released Q4 and full year metrics in late February. Revenue was $53.3 million, up 22% YoY. Net loss totaled $43 million, compared to a loss of $14.3 million same period prior year. Adjusted net loss per share was 16 cents compared to a loss of 21 cents a year ago. Cash and equivalents as of Dec. 31, 2020 stood at $92 million, increasing 500% YoY.
CEO Dan Burton said, “In this spirit, we were pleased to receive the news that our Chargemaster Management product, a new revenue analytics product addition through the Vitalware acquisition, was recently ranked as Best in KLAS for 2020. This marks the third year in a row that the Vital-CDM product has achieved this distinction from the KLAS organization.” KLAS Research ranks products in healthcare IT.
HCAT stock’s P/S and P/B ratios of 9.63 and 7.34 point to an overstretched valuation level. A potential decline toward $42.50 would improve the margin of safety. Given its market cap of $2 billion and successful product, Health Catalyst might find itself as a takeover candidate.
Palantir (PLTR)
52-Week Range: $8.90-$45.00
Price Change Since September 2020: Up about 145%
Palantir Technologies was founded in 2003 by Peter Thiel along with his colleagues. You might remember him as the founder of PayPal (NASDAQ:PYPL) and one of the early backers of Facebook (NASDAQ:FB). The big-data contractor PLTR stock went public via a direct public offering (DPO), where no new shares were offered. Instead, existing shareholders sold their Palantir shares to new investors. On Sept. 30, Palantir stock opened at $10.
The past year has seen Palantir increasingly offer its services to public health agencies to track and analyze the spread of the coronavirus. According to the company an important focus has been working with “a diverse range of institutions as they respond to the COVID-19 pandemic and adapt for the future.”
The company was awarded a contract by the U.S. Food and Drug Administration (FDA) to provide data management and analytics services. Palantir has also made available a data tool for the U.S. government for effective manufacturing and distribution of coronavirus vaccines.
On the other side of the Atlantic, the U.K. National Health Service (NHS) has been working with Palantir, which will provide the organization a software platform for data processing. However, in March 2021, it was reported in the U.K. that the media platform openDemocracy was legally challenging England’s National Health Service for the recent contract that was awarded to Palantir.
In June 2020, Palantir and Japan-based insurer Sompo launched the “Real Data Platform for Security, Health and Wellbeing.” Finally, Palantir also announced a cooperation with the government of Greece, in its efforts to improve the Covid-19 response work.
PLTR stock has been under pressure since the Q4 and FY20 earnings report of mid-February. The current level around $23 offer a good entry point for long-term investors.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
