Want a high-growth stock but don't want to deal with the exceptional volatility and concerns about business longevity that come with owning small-cap stocks? Then say hello to mid-cap stocks, which can offer the perfect blend of growth, value, and more established business models.
With the stock market swooning once more, mid-cap stocks could offer the protection and long-term appreciation potential that investors are looking for. With this in mind, we asked three of our Foolish contributors to name one top mid-cap stock they believe could be worth buying immediately. Interestingly, they see values to be had in the healthcare and financial sectors.
This October, the cure for all your investing ills might just be drug developer Intercept Pharmaceuticals (NASDAQ:ICPT), telehealth company Teladoc (NYSE:TDOC), and cloud-based digital banking solutions provider Q2 Holdings (NYSE:QTWO).
A first-mover advantage in a $35 billion industry? Yes, please.
Sean Williams (Intercept Pharmaceuticals): If you're looking for a high-risk, high-reward mid-cap stock this month, then might I suggest taking a closer look at Intercept Pharmaceuticals, which has been absolutely drubbed since the month began.
Although Intercept is currently losing an unsightly amount of money on a per-share basis, the company's allure comes from its lead drug, Ocaliva. Ocaliva is already approved to treat primary biliary cholangitis (PBC), but it is, more importantly, being examined in late-stage studies as a treatment for nonalcoholic steatohepatitis (NASH). NASH is a liver disease that impacts between 2% and 5% of all U.S. adults, and it's on pace to become the leading cause of liver transplants by sometime next decade.
Now, here's where things get interesting. There are no approved therapies to treat NASH -- a market that could be worth as much as $35 billion. Thus, the first drug developer to bring a NASH product to pharmacy shelves would have a notable first-mover advantage. Intercept is expected to report data from its phase 3 study sometime during the first half of 2019, giving it a genuine opportunity to beat its competitors to the punch.
What's more, Ocaliva appeared to work wonders in clinical trials. Although Intercept's stock took a beating in late 2017 on concerns over PBC patient deaths, it turned out that incorrect dosing was primarily responsible. In the mid-stage Flint trial, NASH patients demonstrated no adverse events that were notably different than the placebo, with the exception of pruritus (itching). In other words, safety concerns might be overblown.
In terms of efficacy, in the phase 2 Flint trial, Ocaliva reduced the NAFLD Activity Score by two or more points in 46% of patients, compared to just 21% for the placebo. Further, 35% of Ocaliva patients saw improvement in liver fibrosis, with 22% demonstrating NASH resolution. For the placebo arm, 19% witnessed fibrosis improvement and just 13% had NASH resolution, respectively.
The table is set for Intercept to succeed, but Wall Street seems to be ignoring it. Don't make that same mistake.
The best way to invest in a fast-growing trend
Keith Speights (Teladoc): Everybody knows that healthcare costs are growing. Any company that can effectively provide a way to keep that growth in check should be in an enviable position. Enter Teladoc.
Telehealth -- the delivery of healthcare services remotely through telecommunications technology -- is hot. And for good reason. Telehealth promises the potential to provide care for more patients at a lower cost. One company is best positioned in the telehealth field: Teladoc.
The company's revenue is growing at a jaw-dropping compound annual growth rate (CAGR) of 75%. Its number of patient visits is growing by a CAGR of 71%. Teladoc claims more than 12,000 clients representing around 40% of the Fortune 500. More than 35 health plans and more than 290 hospitals and health systems use Teladoc.
CVS Health's MinuteClinic retail medical clinics are rolling out virtual healthcare to patients nationwide in the U.S. 24 hours a day, seven days a week. Guess which telehealth company is powering the new service? Pat yourself on the back if you answered Teladoc.
Teladoc isn't profitable yet, but it recently reported its first quarter of positive adjusted EBITDA. I think it's just a matter of time before the company is raking in profits. Telehealth is still only in its infancy. My view is that Teladoc, with its market cap still only around $5 billion, has a lot of room to run.
Leveling the playing field
Brian Feroldi (Q2 Holdings): The proliferation of smartphones has forever changed the banking landscape. The big banks have invested billions to develop the technology that allows their customers to deposit a check or make a payment to a friend without ever having to go to a branch. But how can small and regional banks offer these services to their customers without a gigantic R&D budget?
One answer to that question is to partner with Q2 Holdings. This software-as-a-service company is on a mission to level the playing field so that small and regional banks can continue to thrive. Banks that utilize Q2's solutions can instantly offer their customers must-have conveniences like online bill pay, mobile deposits, voice-activated banking, and more.
Q2's results show that its solutions are being welcomed in the marketplace. Revenue has grown at a double-digit rate for many years, and the company continues to win large clients. The growth is helping the business to inch closer to profitability, too.
So what's the potential here? Q2 estimates that more than 11,400 banks are potential customers, and thus far it's only convinced about 3% of them to sign on. That provides this company with an enormous runway for growth.
Overall, there's a lot for investors to like about this business. With shares currently down about 20% from their recent high, I think that right now is a great time for growth-focused investors to consider getting in.
Brian Feroldi owns shares of Q2 Holdings. Keith Speights owns shares of Teladoc. Sean Williams owns shares of Intercept Pharmaceuticals. The Motley Fool owns shares of Q2 Holdings. The Motley Fool recommends CVS Health and Teladoc. The Motley Fool has a disclosure policy.