It's been a turbulent month if you own any technology stocks. On March 8, the Nasdaq index closed 10% below all-time highs, registering a run-of-the-mill "sell-off." However, for some high-growth names, it's felt like an all-out market crash -- with some stocks trading down 20%, 30%, or more over the last few weeks.
After the downturn, though, a long-term buying opportunity has emerged. These aren't "hold your nose and buy" names. They're growing quickly as the world enters a new digital era and are in control of their own destiny.
1. Teladoc Health: The future of healthcare is already here
It's no fun seeing your best long-term winners suddenly reverse course and start losing money, but I was downright excited when I saw shares of Teladoc trading well below $200 a share again. I started buying a few years ago when the stock was under $50 a share, and business has grown by leaps and bounds since then -- and the pandemic cemented its status as a leader of healthcare technology. 'Twas time to go shopping.
Besides getting caught up in the general tech stock sell-off, some investors who piled into Teladoc last year have started heading for the exits, thinking the growth story is all over now that the economy is starting to reopen. But that simply isn't the case. The Q4 2020 update went a long way to dispel that notion. Besides delivering year-over-year revenue growth of 145% (organic growth of 79% excluding the InTouch Health and Livongo acquisitions), the company expects full-year 2021 revenue to nearly double again to as much as $2 billion over the 2020 total of $1.09 billion.
Sure, much of this will be attributable to the Livongo takeover. A myriad of other companies is trying to capitalize on the suddenly in-demand virtual care industry. But Teladoc was there first and expects to have at least 52 million paid memberships in 2021. It's now building on that lead with other connected care capabilities (like chronic condition monitoring through Livongo) and has a head start on the international front too. The healthcare industry is staggeringly huge -- worth some $4 trillion a year in the U.S. alone. I don't think Teladoc will be stepping on too many of its fellow health tech peers' toes anytime soon.
After a more than 30% haircut from all-time highs, I think shares are priced at a reasonable 15 times expected 2021 sales given the company's expected growth and the size of the industry it's making waves in.
2. Magnite: A bet on TV streaming without picking the best streaming service
Speaking of haircuts, the stock price for connected TV (CTV) advertising platform Magnite was down over 40% from its all-time highs during the tech stock rout. It's since popped again but is still down some 25% from its peak as of this writing. As volatile as it's been as of late, Magnite was due for a breather. Shares are up over 600% over the last six months alone.
Magnite was never supposed to be a quick run to instant wealth, and I think the path from here on moderates. Nevertheless, this is still a small player in the burgeoning CTV space with a market cap and trailing 12-month revenue of just $5.2 billion and $222 million, respectively. And the recently announced purchase of fellow CTV ad software firm SpotX will be transformational, turning Magnite into the largest independent platform for video content producers looking to monetize their work.
This is a huge opportunity for Magnite, as the pandemic has accelerated a transition from traditional linear TV (think cable and broadcasting) to internet-based programming. CTV platform leader Roku validated this, explaining that the easing of pandemic effects isn't likely to unhinge the migration to more modern video consumption. It simply got the ball rolling. And traditional TV is still one of the top places marketers spend money every year. Magnite expanding the reach of its net bodes well for its future catch as this ad spend moves online.
Streaming TV is now ubiquitous, but the party's just getting started. Magnite's CTV business is growing fast, and the company is doubling down on this area with a big acquisition. I expect more bumps in the road, but this is a great long-term value play on the future of at-home entertainment after the recent sell-off.
3. Palantir: A more reasonable valuation on data analytics
I've been cautiously watching Palantir from the sidelines since its IPO, and I missed the big jump last year when shares went from sub-$10 to briefly over $40. Since then, the stock has been reduced to a much more modest valuation and the price is down some 40% from its peak. And after seeing the Q4 update -- the first for Palantir as a public company -- I'm ready to start (still very cautiously) dipping a toe in the water.
My caution stems from the well-documented fact that the bulk of Palantir's business is derived from government contracts. There's also a lot of new stock being doled out as employee compensation that could throttle growth of a stake in the company. But Palantir expects its sales to grow an average of 30% a year through 2025 as data analytics demand picks up steam. Palantir has also made changes to speed up the rollout of its software for commercial companies, and it's posted some early successes on this front.
Plus, Palantir is highly profitable (on an adjusted basis that backs out non-cash items like employee stock-based compensation, operating profit margin was 32% in Q4). The company also has loads of cash: $2.01 billion at the end of 2020, offset by debt of only $198 million. For a high-growth software technologist in a fast-growing industry, that kind of liquidity paired with a profitable operation is powerful.
Granted, even after the recent taming of the stock price, Palantir trades for 32 times expected 2021 revenue (assuming the company grows sales by "only" 30%, although management said to expect "30% or more" growth). It's still a costly price tag, but not terribly unreasonable if the company does in fact deliver on its five-year plan. Thus, I'm ready to start nibbling a little here.