Even the best telehealth stocks have been smashed hard this year for two reasons. First, they’re typically high-beta assets, meaning they’ve experienced excess sensitivity to 2022’s bear market. And second, telehealth stocks are contra re-opening plays, causing them to lose popularity as pandemic restrictions have been eased.
However, the stock market is a forward-looking machine, and considering the Global X Telemedicine & Digital Health ETF’s (NASDAQ:EDOC) more than 27% year-to-date drawdown, all the bad news might have already been priced in for telehealth stocks. As such, there are lovely telehealth investment opportunities on display.
The approach I took for this analysis was to seek three main properties: oversold stocks, undervalued stocks, and secular growth businesses. I firmly believe the names I picked will rebound.
|TDOC||Teladoc Health, Inc.||$39.50|
Best Telehealth Stocks: Teladoc (TDOC)
At a price-book ratio of only 0.6x, Teladoc (NYSE:TDOC) is officially a value stock. I know it might sound crazy of me to claim that this early-stage technology company is a value stock; however, according to market segmentation rules, TDOC is a value stock.
TDOC stock’s drawn down by more than 70% since this time last year after failing to match its earnings target for three straight quarters. Additionally, during its previous quarter, the company was forced to write down the fair value of its long-lived assets, causing a substantial impairment loss. Nevertheless, a value gap has opened up on a stock that holds down approximately 13% of the telehealth market, which is growing at a compound annual growth rate of 23.5%.
Teladoc’s business model is built on acquisitions with the intent of garnering horizonal market share. I believe TDOC’s array of acquisitions, including Livongo, InTouch Health, MedecinDirect, Tele Dietitian, Advanced Medical, and Best Doctors, could coalesce and turn TDOC into a future powerhouse. Whether the stock market prices those prospects in or not is debatable; however, I’ll undoubtedly bet on the odds.
Humana (NYSE:HUM) offers an array of health insurance offerings as part of an integrated business model expanding at a three-year compound annual growth rate of 14.2%, which is more than 6x the U.S.’ GDP. In its previous financial quarter, Humana blitzed past its earnings target by $1.25 per share after also recording 16% year-over-year revenue growth.
Furthermore, HUM stock possesses solid profitability ratios, suggesting that it’s an inflation pass-through stock. For example, HUM exhibits a return on equity ratio of 20.5% and $3.40 in cash from operations. Moreover, the stock’s trading at a price-sales discount worth 1.4x, conveying that HUM is an undervalued growth asset.
Humana is one of the few stocks on an upward trajectory during this bear market. The stock’s trading above its 10-, 50-, 100-, and 200-day moving averages, suggesting that it’s a momentum play of note.
Best Telehealth Stocks: Doximity (DOCS)
Doximity (NYSE:DOCS) takes on the opposite position of Teladoc by targeting medical professionals instead of patients. The company’s platform allows physicians to collaborate with one another, coordinate patient care, conduct virtual patient visits, stay up to date with news and research, and network with other medical professionals.
The company’s gained significant traction lately, conveyed by its three-year revenue CAGR of 58.8%. Additionally, Doximity exhibits a three-year earnings-before-interest-and-tax CAGR of 1.5x, implying that this is a company that’s scaling throughout its income statement and not just in its top line.
DOCS stock is definitely worthwhile at a PEG ratio of 0.2x, which implies that the market underscores its EPS growth by 3.8x. Additionally, DOCS exhibits a mammoth return on invested capital of 91.9%, suggesting that it holds a dominant market position and provides stunning returns on its shareholders’ capital.
On the date of publication, Steve Booyens did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.