3 Healthcare Stocks Too Cheap to Ignore

IInvestors may have forgotten what the color green looks like after all the relentless selling in the stock market lately. It’s been a very bumpy road in recent months and sales have shown no signs of slowing down. But the market can be myopic, which can mean great opportunities for long-term investors.

Health-tech stocks have had a particularly tough time, with some popular names falling more than 50% from their highs. Strong fundamentals and upcoming growth opportunities make these three stocks potential long-term winners, even if they look like losers today.

Image source: Getty Images.

1. Teladoc Health

Over the past two years, investors have been in a wild ride with the telehealth company Teladoc Health (NYSE: TDOC). The leading provider of telehealth services saw a massive surge in business during the 2020 shutdowns, pushing revenue growth 98% year-over-year in 2020 to $1.09 billion. Management expects $2.02 billion in 2021, which would mean almost 100% growth. Part of its recent growth comes from the 2020 acquisition of Livongo, a digital technology company specializing in chronic disease management and treatment, for $18.5 billion.

Now that Teladoc has absorbed Livongo’s revenue and COVID lockdowns are less stringent, management expects a more modest trajectory for revenue growth going forward – an average of 25% to 30% per year through 2024. This slowdown combined with a broader market sell-off against growth stocks punished the stock.

TDOC Chart

TDOC data by YCharts

But as you can see in the graph above, Teladoc is not losing the revenue it received from 2020 to 2021. Is its growth slowing down? Yes, but its forward-looking growth forecast is in addition to the revenue growth achieved during the lockdowns. On a price-to-sales (P/S) basis, the stock is now cheaper than before COVID, when the company had arguably stronger activity. Its acquisition of Livongo was crucial to Teladoc’s launch of Primary360 in late 2021: this new primary care service provides patients with integrated access to Teladoc’s digital health offerings. Teladoc’s valuation is now a fraction of what it once was, so investors can see the stock price reflect its growth going forward.

2.Novocure

Cancer is a terrible disease and its treatment is an important activity within the health industry. Treatments like chemotherapy have been used for decades. Now, NovoCure Limited (NASDAQ: NVCR) pioneered Tumor Treatment Fields (TTF), a new method of treatment using low-intensity electric fields. These are delivered to patients via NovoCure’s Optune device.

Studies show that these electric fields slow the growth of cancer cells by disrupting the rate at which they divide and multiply. Unlike chemotherapy, they specifically target cancer cells without damaging surrounding healthy tissue. NovoCure’s device is currently FDA approved to treat new and recurrent glioblastoma and mesothelioma, two types of malignancies.

NVCR Chart

NVCR data by YCharts

Stocks that depend on FDA approval to bring products to market can go a while without significant catalysts. NovoCure has been treating the same niche cancer types for some time, which has slowed revenue growth. The stock hit its lowest P/S ratio in three years during the current sell-off.

NovoCure is waiting for its device to be approved for the treatment of other types of cancers, such as non-small cell lung cancer (NSCLC), ovarian cancer and pancreatic cancer. Lung cancer is one of the most common types, so NSCLC approval would significantly increase NovoCure’s growth opportunities. Investors should pay attention to critical updates on new approvals this year.

3. Her health and that of her

Teladoc isn’t the only telehealth company trying to meet the growing demand for virtual healthcare. Health for him and for her (NYSE: HIMS), another digital health company in the industry, is building a strong consumer brand for its products. Hims & Hers is aimed at young adults and targets conditions such as hair loss, erectile dysfunction and acne. The company also offers treatments for mental health issues. Patients can speak with healthcare professionals through Hims & Hers, then sign up for medications and supplements delivered to the patient’s doorstep.

His marketing puts a light spin on his business and it seems to be resonating with consumers. The company’s telehealth appointments grew from 431,000 in 2018 to 4.6 million in the third quarter of 2021, a more than tenfold increase. Its memberships grew 95% year-over-year in Q3 2021 to 551,000, driving revenue growth of 79%.

HIMS Chart

HIMS data by YCharts

Unfortunately for investors, the stock price did not reflect this growth, slipping to a fraction of the special purpose acquisition company’s (SPAC) merger price of $10 per share. The company recently announced agreements to increase its retail presence by bringing its supplements and products to the shelves of walmart, Walgreensand vitamin storeand available on Amazon. Meanwhile, the company has just launched its mobile app, which should make it easier to access its platform.

The market does not yet seem to believe in the company’s success. Still, if Hims & Hers continues to perform and record strong revenue growth, investors may need to take notice. For now, the stock looks like a tremendous bargain with a significant upside given the stock’s sub-$1 billion market cap and guided revenue of $265 million in 2021.

10 Stocks We Like Better Than Teladoc Health
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Justin Pope is owner of Hims & Hers Health, Inc. The Motley Fool owns and recommends Amazon, Novocure, and Teladoc Health. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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