Because of COVID-19, investors in Moderna (NASDAQ:MRNA), Teladoc Health (NYSE:TDOC), and Fulgent Genetics (NASDAQ:FLGT) have had amazing returns over the last year. Is the virus going away soon? Will these stocks crash when it does? Healthcare and Cannabis Bureau Chief Corinne Cardina and Fool contributor Taylor Carmichael discuss these three stocks. And they also reveal an under-the-radar pick, OptimizeRx (NASDAQ:OPRX), in this Motley Fool Live segment, recorded on Feb. 19.
Corinne Cardina: For the next half-hour, we are going to talk about three of, what we think, are the best healthcare stocks to buy for 2021. We're going to dive into their growth opportunities, potential risks, and we'll even touch on an interesting contrarian play at the end. We're going to save room for questions. So open up the question-and-answer service called Slido on your browser or the app. Our code is mflive. Submit your questions or other people's, and we will try to get those answers at the end. But let's go ahead and dive in. We're going to start with the biggest stocks and drill down by market cap. The first one we are going to talk about, I'm sure everyone is a little bit tired of hearing about it, but it's Moderna. It's one of two vaccine makers with an authorized COVID vaccine in the US. Its market cap is almost $70 billion. The stock is up 817% over the past year. Taylor, let's talk about Moderna. I'm going to ask you for two green flags, and then we'll follow up with one yellow, red, orange flag because we want to be more optimistic than pessimistic.
Taylor Carmichael: [laughs]
Corinne Cardina: Two green, one possible caution flag just a potential risk. What do you think are two green flags for Moderna?
Taylor Carmichael: To me, Moderna is the leader in mRNA vaccines, and mRNA vaccines, we've seen over the last year, how powerful this technology is. They were the first vaccines to market. They got their vaccines out of the lab very quickly. They got them into animal trials very quickly. They were the first to get FDA emergency use authorization. Moderna -- and Pfizer (NYSE:PFE) was also in mRNA vaccines, that they got from BioNTech (NASDAQ:BNTX). That's one thing about the mRNA vaccine. Very fast, you can find your molecule very quickly. You can get in the animal trials very quickly. And they had incredible efficacy rates. They had 95% efficacy rates. You can't complain about that. And people didn't know. They did not know if the technology was going to work prior to this. This has been really the best-case scenario for Moderna. We were hit with a horrible pandemic situation, and Moderna, boom, nailed it. They came out with the vaccine super quickly. It's amazing when you think about it actually because they did it within a year. Historically, 7 years, 10 years to get a drug onto the market, to find a molecule, to get it through clinical trials. To do this so quickly is really amazing. The positive there is if we have any other problems down the road, we have any other new viruses or new issues, it's going to be the mRNA vaccines that get to market first. They've already proven how quick their technology is, so that's a real big positive for Moderna investors is they're specialists in mRNA technology and COVID-19 and our experience with that, shows us that mRNA technology really works really well. That's a huge green flag. Just their success over the last year, I would say, is the Number 1 green flag for Moderna investors.
Corinne Cardina: Yeah, and I'll add on to that. It's not like the Moderna got lucky and just stumbled on the perfect cocktail of vaccine. They have an mRNA platform, that platform allows them to pretty easily go back to the drawing tables. We've seen all these coronavirus variants circulating. Should there be a problem with the vaccine, as is, it's not going to take a year to reformulate the vaccine to be effective against these new strains. Yeah, that Phase 3 data that came out in December, huge proof-of-concept for mRNA in healthcare. I will also add, I think it's a little bit of an advantage that now, people know what mRNA is. Maybe they don't understand the nitty-gritty, but just the fact that mRNA and RNA, in general, is now in the public lexicon. That's a big hurdle for a healthcare company. That will probably continue to be a tailwind. It's got that familiarity. Let's talk about Moderna beyond its COVID-19 vaccine. I think that's what your second green flag is, sorry. [laughs]
Taylor Carmichael: You got to think about...vaccines have always been kind of an uninteresting segment in healthcare. Because vaccines were very important, and we vaccinate against a lot of illnesses, polio, and the list goes on and on. We do that as babies, so one-and-done shot. Almost all those drugs have come off-patent. There's just no money in vaccines. The only real market in the United States and in Europe is flu. That's a tiny market. That's a $4 or $5 billion market. That was a concern with Moderna, is how big is their market opportunity in just vaccines, because vaccines have always been not super-profitable. A couple of points, one, COVID-19 has shown us, maybe made vaccines more important. People have been talking about vaccines over this last year for a long time. The vaccine market, and I'm inclined to think we're going to be vaccinating for COVID-19, not just this year, but probably next year too, and maybe the year after that. I don't think it's going to be a one-and-done shot, because it does mutate. So I think vaccines are going to be more important than historically the market has recognized. But as you were talking about, Moderna also has a platform, and they're trying to expand their mRNA technology into things like cancer. Cancer is a huge market opportunity for them. Now, being able to work against infectious disease is something that mRNA is really good at, and we don't know how good it's going to be with cancer. That's a completely different thing and even talking about a vaccine in cancer, that's not quite the same thing. You vaccinate to keep foreign bodies from invading you. That's not really how a cancer vaccine works. It's very early on the rest of their platform. The cancer is very early on that, so I wouldn't count on it. But it's nice to know that they are attempting to expand outside of vaccines. They are looking at additional opportunities. Any new technology in cancer can be exciting. It's very early. I don't even think they are in Phase 1 on their cancer drug yet.
Corinne Cardina: So they have a personalized cancer vaccine, that is in Phase 2 trials. This is not a vaccine for you and me, average Joe. This is for people who have cancer. Even though it's a vaccine, it's really more of a therapeutic and would be used in conjunction with chemo, radiation, the standard of care. They've got that. Then they've got, let me see if I can say this, it sounds like a dinosaur to me, CytoMegalovirus vaccines, CMV that is a herpes virus that impacts pregnant women and the development of newborns. So that is in Phase 2. Then they are testing a vaccine for solid tumors in ovarian cancer. It does have a few things in the Phase 2, but certainly, nothing is a sure thing there yet. The most sure thing for Moderna is that it currently has $11 billion in contracts for its COVID-19 vaccine, and for a company, that didn't have anything on the market a year ago, $11 billion? We consider something to be a blockbuster if it brings in $1 billion in revenue annually. This is the equivalent of going from 0 to 100 within a year. Let's talk a little bit about any potential risks for Moderna, Taylor. Do we have a yellow, red, orange flag?
Taylor Carmichael: Yeah. A couple. One, it's very expensive, it's up to a $73 billion market cap. That's very high and so a question to keep in the back of your mind is how big is the market for COVID-19 going to be? Is it going to be consistent or is it going to be a big lump and then disappear? If it disappears for Moderna and if they drop from 11 billion to one billion or less than a billion in revenues, probably their market cap is going to take a hit. That's a question and it's not just for Moderna, but it's a question for investors to think about, honestly, almost in every stock you have. How is COVID-19 affecting it now? How is it going to change it as we come out of this crisis, as we come out of this pandemic, as we normalize? How will this affect our different stocks that we have? I have Novavax, a competitor for Moderna, but it's something that every vaccine company -- you got to keep in the back of your mind, what's going to happen when, hopefully, COVID disappears? So that would be a red flag for me, is how much of that market cap is COVID-related and how much of that revenue is going to disappear? I hope it does. I would love it if it's a one and done shot, to be honest. In my vaccine company, and Moderna, I would just love to get rid of this disease. But I do think it's wonderful what these companies are doing and I think it's certainly the investors who have risked their money to put it into these vaccine stocks have done really well and these companies have really saved the world, I think. This is a horrific disease and we're going to vaccinate. But that would be my one red flag. The other, it's smaller, there are distribution issues with mRNA vaccines. They have 30 days until the vaccine goes bad, so it's a question of, are they going to be able to get the shots into people's arms in 30 days? It's a downside of mRNA technology as it can be a little unstable and you need to refrigerate. Moderna is in a stronger position than the Pfizer one, because the Pfizer one has to be stored at negative 90 degrees Fahrenheit or something. Moderna's can be just refrigerated, but they do have that 30-day window, so there may be distribution issues with the mRNA vaccines.
Corinne Cardina: I'm going to put the CDC's vaccine tracker into the chat. Moderna has administered 28 million. I can't tell if this is doses or people? Oh, it's doses. So 28 million doses. Meanwhile, Pfizer and BioNTech have administered almost 30 million. Moderna basically caught up because they were second to getting that authorization in the US and those numbers were very different for a while, because Pfizer and BioNTech had a head-start. They're are only two million doses behind Pfizer-BioNTech, so that is definitely a good sign. I think last time I checked, we have about five percent of the US population fully vaccinated at this point. I know we're expecting to see doses ramping up in the next few weeks, so we will definitely be keeping an eye on the distribution. It will be a question about if and when Johnson & Johnson's vaccine gets emergency use authorization, will there be a space in the US market? The government has already purchased enough vaccine from Pfizer and Moderna to vaccinate about 300 million Americans, so definitely the valuation is a question. I'll just mention though that it is David Gardner's one of his Rule Breaker guiding principles, is not to put too much stock into valuation, because good stocks go up, and they go up, and they go up. You look at Amazon, Tesla. I for one, actually bought Moderna when it went down because the Bank of America analyst said this stock is overvalued, they downgraded it, caused a temporary dip. So you can use that valuation element to your advantage and that's how I became a Moderna investor. [laughs]
Taylor Carmichael: Nice.
Corinne Cardina: Yeah.
Taylor Carmichael: Have you done well, Corinne?
Corinne Cardina: I am up like $30, I only bought one share. [laughs] I didn't want to sink too much in because it's risky but I bought at $145, it's at almost $180 now. It's important to pay attention to valuation, but you shouldn't let it keep you from buying good stocks, because good stocks are going to go up over time. We're playing the long game. Let's talk about Teladoc, Taylor. Of course, this is the virtual health leader. It did a splashy merger with Livongo, which is a remote patient monitoring company. That closed in the fall. Teladoc's market cap is $41 billion. Its stock is up 144 percent over the past year. Let's get two green flags for Teladoc.
Taylor Carmichael: I love Teladoc and I just love the whole process of industry moving to the internet because that's just been a winner for investors over, and over, and over again. Teladoc is moving healthcare, that massive multi-trillion dollar industry, moving it to the internet. That's an amazing thing. They're the leader in telehealth. They're the dominant name, they're the dominant mind share and they're first-mover. I just think that this is just a huge long-term opportunity for Fools, is Teladoc. It's my favorite of the three we're going to be discussing. I'm ashamed to admit, I do not own any shares of Teladoc.
Corinne Cardina: I do.
Taylor Carmichael: You do?
Corinne Cardina: Yeah. [laughs]
Taylor Carmichael: There we go. I assume it has done well for you as well.
Corinne Cardina: Yeah. I bought it at $50 probably a year-and-a-half ago whenever the Fool recommended. I think it's almost $200 now. Investors don't like deals. When the Livongo deal was announced, I think that hampered a little bit of growth. They're going to have to prove that those synergies can manifest and they're going to have to prove out that long-term, that they can continue to lead digital health. But I'm feeling strong about the long-term thesis.
Taylor Carmichael: Yeah, I think Teladoc is a great stock. You think about any kind of emergency situation, you can just take out your cellphone, get a doctor right away; you're on a golf course, you can talk to a doctor right away. Think how difficult that was prior to Teladoc and now it's automatic. That's amazing, that you can talk to a doctor at three in the morning, that you can talk to a doctor whenever, wherever you are. It opens up time, it opens up optionality. There's so much optionality on the internet. Time and geography are no longer relevant. Teladoc can compete all across the world. Think of them as the biggest virtual hospital in the world and their doctors have access to patients all around the world. That's just an amazing thing. I have very little downside for Teladoc, to be honest. I just think it's going to be a great, powerful, kind of the Amazon of healthcare. I think they're going to be just an amazing stock for people.
Corinne Cardina: Would you say there are any yellow or red flags for Teladoc?
Taylor Carmichael: Not so much a red flag but just something to think about is, I do think for a lot of people healthcare is about relationships and people want to be with their doctor, like, "This is my doctor, I want to talk to my doctor." You can't really do that on Teladoc. Teladoc, you click in, you talk to a doctor, not your doctor. For people whose relationship is very important, the first thing my dad said is, "Can I talk to my doctor?" I'm like "No, you really can't." For senior citizens, they want to speak to their doctor. They're probably not going to be on Teladoc.
Corinne Cardina: Right.
Taylor Carmichael: But for younger people, for millennials, you don't need healthcare as much, but when you do, Teladoc's going to be a great option for you. But I do think there is a limit to the model in the sense of, people do like relationships. They like talking to their own doctor who knows them. It just gives them a consistency in treatment and knowledge and they don't have to explain everything. I do think that is a limitation on the business, there's clearly some parts of healthcare that are not going to move online. And they're not going to admit...being quicker and faster doesn't actually help (sometimes). It's not an unlimited market opportunity. I would just think about that too...and it's hard to put a number on it, but that would be kind of a caution flag I have. One other thing too, I do think when we get this virus under control and things open up again, there will probably be a pullback in Teladoc shares and Zoom (NASDAQ:ZM) too, I would think.
Corinne Cardina: Can we touch on the financials for Teladoc really quickly, you mentioned Zoom, how have you maybe think about Teladoc versus a company like Zoom, would that be a legitimate comp?
Taylor Carmichael: As far as competition, I don't think Zoom is going to take market share from Teladoc. I think Teladoc has some very strong brand advantages and I don't think Zoom does. I would have to see it to believe it. I mean, just the fact that people use Zoom is not quite the same thing as, "I want to talk to a doctor when we go to Zoom." They'd have to set that up and set up that business. They'd have to get a network of doctors. They made noises about it but I don't see them...Amazon might get into this area too. There will be competitors in online healthcare but I think Teladoc has a very strong position that way. In terms of numbers, they're not profitable yet. I'm not worried about that personally because they're still in a high-growth stage. We're seeing 100 percent revenue growth. I just think they have a wonderful business and an enviable business. I think this is a great place for investors to be long term. You might get a cheaper price in the next year. We can't predict what the stock is going to do over the next year but this is a great place for investors to be for the next 10 years, the next 20 years. It's a wonderful company and wonderful space to be in.
Corinne Cardina: Awesome. Let's move onto number 3. This is the tiniest stock of the three we're talking about. It is Fulgent Genetics, $3 billion dollar market cap. It's a genetic testing company that offers more than 18,000 single-gene tests and more than 800 tests for rare diseases. They also do whole genome sequencing. Stock is up almost 600 percent over the past year. It's especially run up since January. Can you tell us a couple of good things or green flags with Fulgent Genetics?
Taylor Carmichael: I'm impressed with their management. They have very smart Founder/CEO. I think, both positive and negative is, almost all of their revenue right now is COVID-19 related. They have a COVID-19 at home test which is very strong revenue growth driver right now where you can test at home for COVID. Testing is very important because you can have symptoms, you can have a hacking cough and you don't know, "Do I have COVID or do I have a cold?" You can have a fever and you don't know, "Do I have a flu or do I have COVID?" There are people who want to know what they have. Fulgent's tests are very high-end. These are very specific and very good genetic tests. So it's not just a nasal swab. This is a very high-end diagnostic test and very reliable diagnostic test, but out of these three companies that we named, I think Fulgent is the most likely to have a bit of a near-term hit. We don't know if the vaccination is going to wipe out COVID, one and done, that would be wonderful. I don't think it's going to happen. Or if we're going to have just an ongoing thing that we vaccinate every year. If it's an ongoing thing, if we have to do this again next year, and the year after, and the year after, Fulgent is going to be an amazing stock and they're going to do really well, just on COVID they're going to do really well. But I'm hopeful, if we eliminate COVID-19, then the near-term Fulgent is going to take a big hit because almost all of their revenues are coming from COVID right now. They shifted to COVID and just jumped their revenue. That's why I like their CEO so much. He was able to make that shift. They do diagnostics for things like cancer. They have a widespread diagnostic program and they're doing a lot of genetic testing across the board. They're a very diverse company in terms of their capabilities, but right now all the revenues are COVID related. So it's extremely a COVID stock. Their numbers are incredible. They have incredible revenue growth. They have incredible profit margins. They're just printing money right now.
Corinne Cardina: If you look at what they were doing before COVID, that might be a little bit of a hint for what it could look like down the road, and I'll just mention, in the first quarter of 2020, before the pandemic was truly a pandemic in the US, its revenue was up 44 percent year-over-year, mostly on testing volumes. So they're increasing their volume. Of course, now, like you said, with COVID, third-quarter revenue was up 880%. So huge difference but they were still chugging along in their main business before the pandemic really happened. What I think is really a trend with all three of these stocks is what you said about management. All three of the management and leaders of these companies were able to pivot pretty quickly during the pandemic and react and be resilient and even be anti-fragile, improving during these really hard times when so many other companies were not growing and not pivoting as well as them. Would you agree?
Taylor Carmichael: Yeah, I do think that the management, and I'm particularly impressed with all three really: Teladoc and Fulgent and Moderna. I do think they have capable management. I think as investors, and this would be just a heads up for all these stocks, it may be a good idea to take a little profit off the table as you go. Precisely because COVID-19 is kind of warping their revenues and their earnings, and there has been a big lump. There's a lot of unknowns, I just want to stress that, there is a lot of unknowns here in these three. Near-term unknowns because we don't know if COVID is going to go away or if it's going to be with us over the next decade, if it's going to be like the flu. It's a question of whether the mutation of COVID. So that's something for investors to keep in the back of your mind. The safest of these three, in my opinion, is Teladoc Health. That is the safest and probably the strongest investment of these three over the next ten years.
Corinne Cardina: All right. Before we wrap up, Taylor, let's share our one under-the-radar pic for investors who do have a nice, healthy tolerance for risk.
Taylor Carmichael: Okay. Well, that's great. Let's talk about this. This is a company, it's OptimizeRx and their ticker's OPRX. OptimizeRx, so really quickly, they are upending the business of selling pharmaceuticals to physicians. So you have drug reps who go to physicians' offices, and they are basically, I think, just trying to remember how many there are, 80,000 pharmaceutical sales reps, and there are 800,000 prescribing physicians. So they're trying to grab like ten minutes of these doctor's day to sell their drugs. It has been the historic method of selling drugs. Well, OptimizeRx, what they're doing is they are shifting this business. They're using the internet to shift this business to online, and they have a network of electronic health records providers. Electronic health records are what your doctor's looking at on their cellphone or the tablet when they talk to you. A doctor spend about six hours a day looking at electronic health records and OptimizeRx has figured out a way to market pharmaceuticals via electronic health records and that is where they're shifting this business. A $20 billion segment of healthcare, selling pharmaceuticals to doctors and OptimizeRx is shifting that online. So I'm very excited about this stock, it's a small cap, a billion dollar company, 100% revenue growth, and it's small and it's unknown. The stock, I think it was a four-bagger last year, four or five-bagger, so it's done really well. Excited about long-term opportunity just because, it's like a mini, mini Teladoc health. So instead of changing how physicians, how we talk to physicians, you're changing how pharmaceutical companies talk to physicians.
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