Investors focusing on large-cap, mature pharmaceuticals companies may be apt to think of healthcare as a defensive sector. But the fact of the matter is there’s ample growth and innovation to be accessed here. Digital health is a prime example of healthcare innovation and provides the platform for big gains for telemedicine stocks.
In fact, telemedicine stocks epitomize much of the disruptive growth proposition offered by the healthcare sector. Speaking of disruptive themes, like counterparts in the cloud computing, fintech and online retail spaces, digital health names are getting a big lift from the novel coronavirus pandemic.
The pandemic is straining hospitals and forcing many patients to forego elective procedures. That makes sense. But Covid-19 isn’t eliminating the need for other essential medical checkups and diagnoses. That remaining need puts telemedicine in the spotlight in a big way.
More importantly, and in comparable fashion to cloud computing, e-commerce and fintech, digital health was taking off prior to the pandemic. What that says is telemedicine stocks aren’t dependent on Covid-19 for success. And that success will be there for the taking after the virus is vanquished.
With a long runway for growth ahead, here are some digital health names to consider in 2021:
Teladoc (NYSE: TDOC)
Nuance Communications (NASDAQ: NUAN)
Global X Telemedicine & Digital Health ETF (NASDAQ: EDOC)
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Teladoc is one of the most recognizable names in the digital health space. It also is one of the dominant purveyors of virtual health platforms that are enabling doctors and non-Covid patients to connect during the pandemic. As such, investors in TDOC stock are being handsomely rewarded with a 136.30% year-to-date gain.
Even with that dominant market positioning, Teladoc has a way of conjuring up naysayers in the investment community. The critics say at the height of the first wave of coronavirus cases – March and April – telemedicine appointments generated $4 billion in revenue, up from just $60 million in the same period a year earlier.
However, the doubters ignore some pivotal factors regarding the TDOC stock thesis. First, there are avenues for in-person and online healthcare visits to coexist. It’s likely many patients and their healthcare providers prove in-person for assessment and diagnoses. But follow ups, in many cases, can be conducted in virtual fashion.
Second, companies like Teladoc make healthcare more efficient. And with increased efficiencies come lower costs – one of the biggest concerns when it comes to treatment. Third, Teladoc is ideally positioned to capitalize on a rapidly aging population. Many seniors are no longer able to drive and don’t live near family members that can transport them to medical appointments.
A fourth-quarter slump of 8% in this name could ultimately prove to be a buying opportunity. That slide has the stock residing around $198 as of Dec. 28, or 22.2% below the consensus price target.
Nuance Communications (NUAN)
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Nuance Communications, a mid-cap stock that’s up a scintillating 146% in 2020, is a great example of a growth company where multiple disruptive technologies meet. In this case, it’s healthcare innovation, artificial intelligence and robotics. That adds some pizazz to a name that upon first glance doesn’t appear to be all that glamorous.
Nuance’s Dragon Medical One product basically is a robotic administrative assistant, playing into the company’s suite of diagnostic, document management and quality care solutions. Dragon Medical One uses AI-based voice recognition to enhance digital documentation of patient narratives.
Likewise, Nuance Performance Analytics uses AI to generate better diagnostic, financial and patient outcomes for healthcare providers while the PowerScribe One product uses AI to increase workflow efficiency. All of these are mundane tasks, but ones that are made more compelling for investors by the introduction of disruptive technologies.
Much of the core thesis for NUAN stock revolves around AI-powered products bolstering efficiencies and streamlining the nitty gritty, day-to-day aspects of medical practices. That can drive costs down while leading to better results for patients and providers.
By every traditional valuation metric, Nuance is expensive, but rare are the examples of telemedicine stocks that are cheap. The good news is Nuance’s market capitalization is just $12.44 billion (as of Dec. 28), implying there’s a long a runway for growth here.
Global X Telemedicine & Digital Health ETF (EDOC)
Obviously an exchange-traded fund, not an individual stock, the Global X Telemedicine & Digital Health ETF is one of this year’s legitimate success stories among rookie ETFs. Consider this: Nearly 300 new ETFs came to market this year and only six attracted more assets than the $547.65 million that made its way into EDOC. That figure is all the more impressive when considering EDOC debuted in late July.
EDOC, which tracks the Solactive Telemedicine & Digital Health Index, holds 40 stocks, led by Nuance at a weight of 4.68%. No ETF is safe from imitators, but EDOC does have first-mover advantage among digital health funds. And its rapid success could prompt aspiring copy cats to think twice before butting heads with what’s now a juggernaut.
The Global X fund taps into growing themes while easing investors’ stock picking burden, which is advantageous in an emerging growth arena like digital health. Moreover, EDOC will be durable after the pandemic is defeated.
“In our view, these trends are driving significant opportunity in telemedicine and digital health – the market for these technologies reached an estimated $175 billion in 2019 and is expected to grow to over $657 billion by 2026,” according to Global X research.
EDOC charges 0.68% per year, or $68 on a $10,000 investment.
On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Todd Shriber has been an InvestorPlace contributor since 2014.
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