In this episode of Industry Focus: Wildcard, host Dylan Lewis and Motley Fool contributor Brian Feroldi round out last week's top stocks for 2021 theme with a Wildcard day dedicated to healthcare. Tune in for breakdowns of two profitable high-growth healthcare companies and a Fool favorite that looks like it has a lot more runway

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This video was recorded on January 13, 2021.

Dylan Lewis: It's Wednesday, January 13th, and we're talking about top healthcare stocks for 2021. I'm your host Dylan Lewis, and I'm joined by Fool.com's happy head honcho of ho-hum healthcare hunches, Brian Feroldi. Brian, how are you doing?

Brian Feroldi: Dylan, happy Wednesday to you, my friend.

Lewis: Happy Wednesday. Always love getting in the mix on Wednesday, because it gets me outside of what I normally talk about. I'm usually pretty head down in the tech world. We get to do whatever we want here on the Wildcard show, Brian. We did our top stocks last week for 2021, had a bunch of different sectors represented there, but I don't think we really had a show dedicated to the healthcare space. We are going to fix that today.

Feroldi: I for one miss having Wednesday be the healthcare only episode, so doing my best to make sure that healthcare is represented on Industry Focus.

Lewis: You got to be an advocate, and that's because you have the background in the space, and you know what? You're an awesome teacher. Even though I don't, Brian, I feel like you hold my hand along the way and give me enough confidence to throw some names out there as well. On today's episode, we're going to be throwing three specific stocks out there that look like interesting buys for 2021. Brian's got two, I've got one. It should be a fun run.

Feroldi: Absolutely. Let's get into it.

Lewis: Brian, so I'm going to let you go first. We'll go Brian, Dylan, Brian, just to mix it up a little bit so no one's talking too much all at once. Your first stock is Semler Scientific (OTC:SMLR), you want to walk through that one a little bit?

Feroldi: This is a company that I've pitched multiple times now on Industry Focus. The more I dig into it, the more I look at it, the more I like it. The ticker here is SMLR. As we've stated numerous times, this company does not trade on the NASDAQ or NYSE, it trades over-the-counter. If you're interested in this stock, just know it trades over-the-counter which means very, very low liquidity, and that can do crazy things to the price in the short-term. But if you can overlook that, there's a lot to like about this company. Semler is focused on making diagnostic products that help people with peripheral artery disease. Peripheral artery disease is simply the narrowing of the arteries in the body due to the progressive buildup of fat, that's called PAD. PAD is a huge health problem. If you have PAD, blood is not getting to your extremities and you are four times more likely to die of a heart attack, and 2-3 times more likely to die of a stroke. There are lots of treatments for PAD, but the big problem is, we are bad at diagnosing it. That's for a number of reasons most have to do with. The current standard of care is to use a blood pressure cuff, which takes a lot of time in the doctor's office, has to be performed by a vascular technician to be done properly. There just isn't a fast, easy way to diagnose PAD. That's where Semler Scientific comes in.

They invented this product called QuantaFlo, which is a little tiny clip that goes onto the patient's fingers and toes before their healthcare meeting is under way. The little clip then measures the flow of blood to their extremities, and it produces a report within a matter of a few minutes that lets the provider know if blood is flowing to their extremities. If there isn't a restructuring of any kind, the provider can get that information in their hands right away, and they can take the necessary actions. This is a technology that helps to diagnose something that is currently chronically underdiagnosed.

Lewis: That's a good spot to be in. We talk about it often when we look at healthcare companies, Brian, but really when you can find something that leads to generally better patient outcomes and maybe makes it a little bit easier for the folks that are administering whatever procedures might be happening, that tends to be a good spot to be operating in as a healthcare business

Feroldi: I think over the next 10 years there's going to be a big shift away from treating toward preventing, and Semler plays right into that trend. Now, the exciting thing for Semler as an investment, the technology is very, very cool. But if they were selling clips, that hardware, I would not be interested in this company at all. What excites me about this company is the business model that they have chosen is based on, wait for it, software, Dylan [laughs]. Rather than charging for the clip, although they do charge some places for the clip itself, they charge for the software that creates the report. Physician offices can either pay a fixed monthly fee, or they can pay each time a report is produced. Because that's the business model that they chose, this company has some jaw-dropping margins. In the most recent quarter, revenue grew 21%, which isn't barn-burning, but that's pretty good considering 2020, a whole bunch of doctors' offices were closed down. The exciting thing about this number, while it's still pretty small in absolute terms at about $10.7 million, is the gross margin here is 92%, and that figure was up year-over-year. That's the power of selling software.

Lewis: Yeah. I spent a little bit of time looking at this business before we hopped on. I almost thought it was a mistake, Brian [laughs], when I looked at the margin profile. Over the last 12 months for this business, just under $36 million in revenue, and $32.4 million in gross profit. It almost seems like a misprint, it's so high.

Feroldi: It's crazy. Again, that figure was up from the high 80s in the previous year. Now what's equally exciting is this is an extremely lean organization, extremely lean. They've been growing their sales and marketing expenses overtime to get this product into the hands of more providers. But they reported, in the last quarter, on $10.7 million in revenue, $4.8 million in net income. That is a net -- after all expenses are taken out -- a net margin over 40%. That wasn't a fluke, that was their 12th quarter in a row of profits. This business is highly profitable, cranks up free cash flow, and they have a balance sheet that showcases that strength, $60 million in cash, no debt. Financially, this company, while small, is incredibly strong.

Lewis: Brian, I think what's hard to wrap your head around because of the way the COVID hit this business is almost what an appropriate growth rate is and what to reasonably expect when it comes to the top line for this business, but so that folks can understand where they are, this is a company that denominates its market cap in millions, not billions, and they are already profitable. Should that growth come back in the subsequent quarters as people start returning and maybe being a little bit more comfortable going to physical doctor's offices, I have to imagine that it's going to flow through everywhere else. It just seems like this was something that was already on a pretty nice growth rate and then had that interrupted. But going back to normal will only mean good things for this company.

Feroldi: To your point, Dylan, this company's current market cap is about $570 million. It's been publicly traded for a long time and it is up enormously over the last five years, a multibagger. This was a company that has been public for a while and was very, very small at one point, but the market cap has grown substantially. Something else that caught my eye in this most recent report was, I'm getting the sense that this company has some optionality to it. In the most recent report I hear, "We entered into a marketing and distribution agreement with a private company on an exclusive basis in the U.S. in Puerto Rico in a new product area." They signed a deal with a product that they think is exciting, and they also made a bridge loan to a private company working in a second product area. Not only does their main moneymaker now, QuantaFlo, have tremendous room for growth just in the U.S., later in the world, but they're already thinking ahead and are making investments to develop new product lines.

Lewis: Brian, I think it might be worth talking a little bit about what the TAM looks like for this business, and what the overall opportunity is. Because, particularly when we talk about procedures and things that people don't personally have to use in the healthcare space, it's a little hard to understand how big the patient population might be for the products from the companies that make them.

Feroldi: That's a hard number to wrap our heads around right now, because the company from what I've seen, doesn't provide any hard data that says, this is our TAM, this is how much we have, this is how many doctors offices we have, etc. However, they believe, and I think they have an argument, that this should be the standard of care for basically every regular doctor visit that happens in the United States. They think that in the U.S. alone, about 80 million Americans should be screened annually. They're currently targeting about 300,000 or so doctors' offices as potential partners. One way that they're doing that is they're actually working with insurance companies, because again, if their technology can identify high-risk patients, how many patients do you have to keep out of the ER from a heart attack or a stroke to pay for this system for a year? It's really not much. There's a number of people that win here. Well again, we don't have an exact scale of how big this company can be. The quarterly revenue was $11 million, Dylan. I think there's room for that number to grow.

Lewis: Yeah. It's always helpful when you can start running through some of the quick hand valuation metrics and actually have an E to work with in [laughs] that P/E ratio.

Feroldi: That's exactly right. Now, this company is not risk-free by any stretch of the imagination. In fact, the biggest risk that they have is the one that I highlighted every time I talked about them, which is, this company has some serious customer concentration issues. Their No. 1 customer is 40% of sales, their No. 2 customer is 30% of sales. I'm almost positive that those are health plans, such as Blue Cross Blue Shield and United, and they're all bundled into one as opposed to any given one practice or one office. But make no mistake, there is some customer concentration here. If for whatever reason one of those two customers were to defect, this company would get hurt badly.

Lewis: Yeah. I think given the financials that they have, they'd be able to weather that, at least short-term Brian. This is not a unique risk. When we're talking about companies that are sub-billion-dollars, this is often customer concentration, a very common trait of those companies. You just hope to see that those percentages dip a little bit more overtime and you start to see that spread out a little bit more.

Feroldi: That is the hope. Now, offsetting that risk. Again, the customer concentration, big problem here. The fact they trade OTC, potentially a big problem here. I've actually heard from some people on Twitter that they registered in this company and their broker did not allow them to buy shares for whatever reason. Offsetting those negatives is the fact that this company is highly profitable. Because there's an E working with here, we actually have a P/E ratio to look at Dylan, how novel. This company is currently trading at 43 times, analysts' estimates for earnings in 2021, 43 times. That is E, not sales. That is not, in my opinion, a very high number.

Lewis: Given where things are, Brian, 40 times sales is something that people might not even bark at anymore. [laughs] Just becoming par for the course, especially with the company that has 90% gross margins. [laughs]

Feroldi: That's right. If this company can grow at all, let alone match anywhere near its growth rates in past years, I think the valuation today is pretty attractive.

Lewis: Brian, you're pitching something that I think, somewhat reliant on the physical medical model, right? We talked about how there were interruptions with 2020 for them and that might have gotten in their way and their growth rates. My stock for 2021 is one that I think a lot of schools are going to know, but specializes in the virtual delivery of healthcare services, and that is Teladoc. They are really the leader when it comes to virtual healthcare services. They have medical professionals and video conferencing, telehealth systems, you can see a doctor without leaving the home. That's the simple value prop pitch for customers. Brian, when I look at this company, what I see on the patient side is huge benefits for folks that have difficult chronic conditions, huge benefits for people who live in remote areas, and also huge benefits for people that are short on time.

Feroldi: There's no doubt about that. I mean, just like I think Sempler is pretty much a win-win for all parties involved, you could make a very strong argument that Teladoc and video conferencing has the same thing. I'll throw in one more stakeholder, Dylan, a lot of doctors moonlight on Teladoc and sell their services in ancillary, by partnering with Teladoc in their off-hours. You can make an argument that's a big win for providers that want to end up their income too.

Lewis: I appreciate you strengthening my bulk case there, Brian. [laughs] The company has two main revenue streams. This is going to sound similar to Brian switch, recurring subscription revenue fees from clients who want insured patients to have access to their telehealth systems, and then they also have a per visit fee revenue stream as well. Brian, I feel like basically anytime we say recurring revenue of stock gets its wings [laughs] on the show. But it's something that is so attractive to us, and particularly with this business, because I think it shows that they have institutional buy-in, and that's a really important thing in the healthcare space when you were working with insurers. Also, for their purposes, gives them a critical mass of users and members. To me, it signals at this point with about 50 million. They're not going anywhere. This isn't like a flash in the pan type fad.

Feroldi: This company definitely has the network effect working for it. Where if you are a patient or a health plan and you're trying to pick a video conferencing provider to work with, it makes sense to go with the company that has the most doctors, the most patients, the most insurance plans, etc. That is definitely working in Teladoc's favor.

Lewis: Yeah. The business, as you might expect in 2020, had a monster year. The tailwinds were already there. Really just everything that happened in the year of the pandemic really pushed those things forward. Shares wound up being up over 140% last year. There are a couple of big reasons for that. There was the acceleration of growth trends. If you just look at the quarterly growth rates year-over-year, Q4 2019, 27%; Q1 2020, 41%; Q2 2020, 85%; Q3 2020, 109%. They saw a massive acceleration. They are also pretty big on the future of their business with the acquisition of Livongo Health. I think those two things really caused a lot of expectations we built into the stock and a lot of people starting to wonder exactly where it might be going long term. But I think, like we talked about with MercadoLibre last week, Brian, this is a business that was already going to be benefiting from kind of where the pack was going. Then the pandemic created a step change in adoption. The key for them is going to be keeping the folks who wound up turning to virtual medicine on the telehealth system once they're able to go back to doctors' offices.

Feroldi: I think this is definitely a company that will benefit in the long term from COVID with the habit changes that people have where they were forced to get used to telemedicine. Once you do it, I can see that being so simple and so easy that you will use that even post pandemic. You brought up an interesting point there that I think was the big story in 2020. It was their acquisition of Livongo Health, which is a company that does real-time coaching for disease management. Specifically, their core market was diabetes, but they were getting into some other areas. That was a huge deal when it was announced, because it was an acquisition, but those two companies were pretty comparable in size. So, 2021 is going to be a year of integration for them.

Lewis: Yeah, I think that's probably one of the biggest opportunities and simultaneously one of the biggest risks for this business. A lot of times, when we are talking about acquisitions, it's a fairly large company buying a pretty small business. You say, OK, well, you're an $80 billion company and you're buying something worth $5 billion, it's a lot of money to commit to it. But if you need to write it off at some point in the future, you can probably weather that pretty well. In this case, it was basically a merger of equals; an $18 billion business, $18.5 billion was the final close. At the time, I think Teladoc was probably somewhere in the high teens in their evaluation. They basically doubled the size of their company with their acquisition. Livongo did not have a particularly large revenue base to build off of. They, like Teladoc, were in a spot where so much of the value is what that business will become, not what it currently is right now.

Feroldi: On paper, the deal made a lot of sense, and the acquisition wasn't necessarily new for Teladoc. If you look at the company's history, it actually has made numerous acquisitions over its history to both consolidate market share in the U.S., as well as expand into international markets. However, nothing matches the scale that was the Livongo Health acquisition. To your point, tremendous potential, also tremendous risks with execution.

Lewis: Yeah. The potential for them really comes in the idea that they can expand beyond their core patient-doctor relationships. You said optionality before when you were talking about your stock, I'm going to invoke that as well here, Brian. Because I think what they are really trying to do is think about the overall healthcare ecosystem, think about clinics, hospitals and insurers, and really broaden out what their market is. What I like about the business is they are by far the leader in a relatively nascent space that I imagine is only going to continue to grow over time, and they have this optionality where they can dramatically expand the size of their TAM overtime with this acquisition, with their InTouch Health acquisition as well, and really start to build something that is pretty defensible and pretty strong in the competitive environment.

Feroldi: I agree with you there. I mean, 2020, there was definitely a lot of experimentation with getting video conferencing up and going. Telehealth was definitely a big theme. There's also, I could easily see a lot of room for continued growth and new products that come out that make telehealth even easier. I mean, Livongo had a blood glucose meter that was used by people with diabetes that automatically uploaded the results to the central repository. They also are working on products for weight management, for cholesterol. As those products become more and more popular, cheaper and cheaper, telehealth, to me, it's just going to grow.

Lewis: We've seen some incredible numbers from 2020. I think one of the tough things with this business is what does 2021 look like? What do you think it would look like when people are able to regularly go back to work, feel a little bit more comfortable entering physical spaces, all that kind of stuff. Because they break out a lot of their core business metrics by a couple of different categories depending on whether they are in the paid or the non-paid memberships structure. But you look across the board, when it comes to their visits, all of them were up triple-digit percentages in the United States. Some of them 200%, 300% year-over-year. That's massive. It's hard to know how those numbers shake out long term. But if you can keep some of those people around, and keep them happy, particularly keep that U.S. paid membership relatively steady. I think once people are in the system, they'll continue to use it. But it does remain an existential risk for them. Brian, I think the one other thing with this is often when we see growth get pulled forward so dramatically, like it did in the case of Teladoc, it can take a little while for stock to live up to the valuation. They have both the virtual growth and the virtual adoption happening, but the acquisition happening as well. There is not a lot there in terms of business results to backup. So much of what we currently see in terms of valuation hinges on their ability to execute down the line. I say all that because we're talking about healthcare stocks for 2021, but I think that this is certainly one where 2021 might be a weird year. It might be one where you're buying and you're seeing the thesis really play out over three, five, 10 years. That's how we tend to look at everything, but I really want to emphasize it for this one because the growth rates could be weird. They were so fast so dramatically in 2020 and it's hard to know exactly how they're going to shake out.

Feroldi: Fair enough. Yeah, the stock is basically traded sideways for the last six months. But I think a lot of that is just because the run prior to that was so huge and Livongo Health was also on just a massive tear. Wall Street is basically saying this acquisition makes sense, prove it to us in 2020, we'll be there, 2021 we'll be there, you have to do it.

Lewis: Exactly. We're always talking long term, Brian, but we don't want to make any confusion about this one. I'm not saying check-in with me on December 30th of 2021 on this one. Check-in with me on December 30th of 2025 on this one.

Feroldi: Fair enough, fair enough, Dylan.

Lewis: All right, Brian. What is your third stock to round out our healthcare basket for 2021?

Feroldi: This one is a new one I think to Industry Focus. I don't remember ever talking about it before, but I've really gotten to know this company better over the last couple of months, but there's a lot to like about this. This company is called Progyny (NASDAQ:PGNY), the ticker symbol here is P-G-N-Y. Dylan, before I put this on your radar today, have you heard of this company?

Lewis: No, and that's one of my favorite things with kicking ideas around with you, Brian, you and Joey Solitro. I feel like I get Slack sometimes, I'm like, I couldn't even guess what that business does.

Feroldi: [laughs] Fair enough. This company is focused on the fertility market, and I love companies that are mission-driven. This company is definitely mission-driven and their mission is to make any members' dream of parenthood come true. If you know anything about the fertility market or if you've ever talked to anybody that's had fertility issues, it's an extremely common problem. About one out of every eight couples in the United States alone has a problem or has trouble getting pregnant, and this number is only growing over time. One of the key reasons why is couples are choosing to have kids later in life as they work on their careers earlier. The longer you wait, the typically harder it can be to get pregnant. So, that is a market that Progyny is focused on. Huge market already, this is a $7 billion market in the U.S. It's growing about 10% per year, but when you dig in, the current fertility market is basically broken. It's very outdated. If you are somebody that is trying to get pregnant, there isn't an easy way for you to do so. Some employers offer benefits for it, but you, the employee, are essentially on your own. You're given a pamphlet and say, ''Hey, here's the benefits that we offer. Go figure it out.'' If you are having trouble getting pregnant, it can be extremely expensive to try, extremely expensive. The average cost is currently $67,000 for the average couple, and the benefits that are out there rarely cover that number in full. It's also, patients are basically left on their own to figure out how to go through that process by themselves.

Progyny comes in and they partner with large employers to basically simplify the entire process and make it better for everyone. Progyny has built up a nationwide network of 800 of the top fertility specialists in the U.S., and when they are hired by a company, every time an employee raises their hand and says, "I'm having trouble getting pregnant," Progyny assigns them with a patient care advocate who essentially acts as a centralized resource for decision-making and care coordination. Progyny also greatly simplifies the cost of period by offering these things that they call Smart Cycle, which are basically all-inclusive treatment bundles upfront that the member can go through to determine their course of treatment. Doing so removes a lot of the financial uncertainty and it gives the employee someone to talk to and make decisions on. Progyny has built up a huge database over the last couple of years that it can go to to make decision-making much easier, and they have the clinical outcomes to prove that by partnering with them, there is much less waste, there is much higher outcomes, and there is better productivity and a much higher chance of having a successful pregnancy.

Lewis: Brian, just the business part of this aside, I 100% buy that argument. Because I think when you're talking about this space in general, there are some parts of healthcare that feel taboo and very isolating, very difficult to talk about. I'm not in this position, I don't have kids and they're not quite on my short-term radar, but I know friends that have had a hard time conceiving, and it's a really tough thing to go through. It's a really hard thing to talk about. I have to imagine feeling like you have a team. Feeling like you have a support network is probably a huge part of patient success and probably better outcomes.

Feroldi: I mean, can you imagine just the emotional drain of going through that process? Let alone having to fork over potentially tens of thousands of dollars, and then having the odds stacked against you of succeeding? Progyny, again, sells its services, they primarily target large self-insured companies out there. This is a benefit that is increasingly becoming in demand and asked for. Currently, they say that about 50% of large employers offer some type of benefit, but this number is going to grow over time. Progyny is the top dog in this space and they stand out for a couple of reasons. First off, they have the largest pool of clinical data to point to that says, hey, look. You partner with us and not only do you get better outcomes, but there's also cost savings down the road through a number of ways, including reduced absenteeism and improved employee retention over time. They also can help the employee to coordinate their pharmacy products on top of this. So, not only do they help with the hand-holding and the decision-making, but they can also help to ensure that the pharmaceutical products get into the patient's hand and are actually used at the right time. That not only simplifies things, but it leads to a huge clinical outcome game. So, a very exciting product.

Lewis: Yeah. This is an interesting one, Brian. Having seen enough new stories about this being offered as a benefit, it's really interesting to now hear about the company that is behind some of this stuff because, you see, anecdotally, the stuff coming out of Silicon Valley and Big Tech where there's the arms race to continue to offer better benefits as a means of employee retention. I didn't realize that this was the business that was behind it.

Feroldi: Yeah. This is the top dog, and to your point there, Dylan, this company did start in the Silicon Valley area and a lot of their first customers were some of the biggest tech companies in the world. I mean, they count Microsoft, Google [Alphabet], PayPal, etc., etc. as clients. However, they have consistently, over time, moved into different markets and attracted employers. They currently have over 180 clients from 25+ industries and this includes companies like Unilever, Hershey's, Lincoln Financial. While the benefit was initially aimed at Silicon Valley tech companies, a lot of companies are warming up to the idea of offering this to their employees.

Lewis: All right. Let's talk a little bit about what the books look like. I feel like this was one that needed a lot of explanation upfront, so people could really wrap their head around it and we gave it to them, but we should probably talk a little bit about the financials as well.

Feroldi: Well, the story gets more exciting from there if you buy the thesis so far. I thought, initially, that 2020 was going to be a really tough year for this company. I thought companies are going to be pulling back on benefits to save money and that was really going to hit this company's growth. Apparently, I was wrong, because last quarter, this company reported 62% revenue growth to $99 million. Now, they generate revenue, again, in two primary ways. The first is through fertility benefits, and that's the majority of revenue today. A few years ago, they started offering the ability to offer pharmacy benefits too for fertility, and that business grew 131% last quarter to $26 million. Now, because this is primarily a service business, the gross margins here are low. Last quarter, the gross margin was 21.1%. That was up 100 basis points over the prior year. So, just understand that going in, this is a low-margin business.

Now, despite having a relatively low margin, what excites me about this business is they've already reached profitability. Last quarter, $5.3 million in profits. That's a net margin of about 5%. That's pretty impressive, given that the gross margin here is about 21%. They also came public just about 18 months or so ago. Very clean balance sheet, $110 million in cash, zero debt. So the financials here, while not very high-margin, are very strong.

Lewis: Who are you, and what have you done with Brian Feroldi? Bringing two profitable companies to the discussion, Brian. I don't know. If it wasn't for Zoom, where I could see your face, I would think I was talking to somebody else. [laughs]

Feroldi: Dylan, they both have recurring revenue. Don't worry, I haven't lost my mind. This company actually just gave a presentation at a very important healthcare conference and actually gave guidance already for 2021. So, while they were going to report, again, 60% revenue growth in the most recent quarter, they expect that number to remain very high. For 2021, they're expecting revenue growth of at least 53%, at least 53%. This company is growing fast, and they expect to continue doing so for a while.

Lewis: Yeah. What do you see when you look out at the overall potential for them? Because I think, like some of the other discussions we've had today, this is, again, a tough one for people to wrap their head around market-wise, because unless you're in this space, you're probably not too familiar with it.

Feroldi: Again, they currently have about 181 clients. They do target large, self-insured businesses, and they believe that in the United States, they could potentially sign on about 8,000 total customers. So, they are only scratching the surface there. Now, they have already captured a lot of the biggest companies, as I said, Google, Microsoft, etc., but they think there's plenty of room for them to grow just in the U.S. with their current opportunities. They have said that longer-term, they plan to grow within their existing client bases, as well as launch new services, just like they did a few years ago successfully with the pharmacy benefit. Then there's also the potential for this company longer-term to sell their services to universities, governments, labor unions, etc. So, they believe that their growth is just getting started.

Lewis: Yeah. I guess we don't need to be so limited in how we look at benefits being offered. It's not just traditional work that we can extend this to. It's something where, if you have a collective of people and there's insurance being offered, there's probably a fit for them somewhere.

Feroldi: I think that that's right. Now, again, because there's earnings here, Dylan, there is a P/E ratio to look at. The trailing one isn't too impressive. But we're at the point that I think it makes sense to look at the forward P/E earnings ratio for 2021. This company's currently trading about 110 times next year's earnings estimates. That's a high number. Given the growth rates here, I don't think that's insane. That is a high valuation, though, so that is a risk for investors to watch. The other question that I have about this business is, is this a nice-to-have benefit or is it a need-to-have benefit? That's a question that I had in 2020. Given the growth that they put up in 2020, I think this is almost a need-to-have benefit, or it is going to become that way. The other question that I have is, how durable is the moat? They said that their size and their scale gives them a competitive edge, again, as well as their data. That was a question that I had. One of the things they point out is that two-thirds of the companies that they've signed up so far switched from another provider. So, the name is out there, and they clearly have the data that is resonating with employers.

Lewis: Yeah. I think that their model and approaching employers, rather than being a consumer-facing business, helps them out a lot on the moat side, helps them out a lot when it comes to the need to have, nice to have. The budget element of this, when you're looking at the cost, I think this is a much tougher pitch if you're direct-to-consumer.

Feroldi: I think it is too. But the way that they're going out there, clearly, they're having success and the business model is working.

Lewis: Brian, we talked about three businesses. You pitched two, I pitched one. Do you own the two that you pitched?

Feroldi: I own Semler. I do not own Progyny yet.

Lewis: So, this is a watch list, "possibly when it clears for you" type of stock that you might be buying?

Feroldi: That is exactly the way to classify it, Dylan.

Lewis: [laughs] Got it. I would put Teladoc in the same space for me. In the interest of transparency, folks, know that I'm planning on doing a good amount of buying in 2021, and Teladoc is probably in the top 10-15 stocks on that list.

Feroldi: Awesome.

Lewis: [laughs] I know, Brian, that one of your ultimate goals, you joked with me on Slack, is to have me buy Pinterest and Semler this year. You've already got me on Pinterest, we'll see on Semler.

Feroldi: All right.

Lewis: Those margins are just too outrageous for me to ignore. [laughs]

Feroldi: I've got 11.5 months to keep bringing it up. It's going to happen, Dylan.

Lewis: Resolutions are important, folks. You got to aim big. [laughs]

Feroldi: That's right. [laughs]

Lewis: Brian, thanks so much for joining me on today's show.

Feroldi: Thanks, Dylan. Great to be here.

Lewis: Listeners, that does it for this episode of Industry Focus. If you have any questions or you want to reach out and say "Hey," shoot us an email at industryfocus@fool.com or tweet us @MFIndustryFocus. If you're looking for more of our stuff, subscribe on iTunes or wherever you get your podcasts.

As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against stocks mentioned, so don't buy or sell anything based solely on what you hear. Thanks to Tim Sparks for all his work behind the glass today, and thank you for listening. Until next time, Fool on.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.