One way to earn outsized returns over the long run is to buy shares of companies that are leaders in an industry with solid growth prospects. It's even better to do so when said companies are going through challenging times on the stock market, provided that there are good reasons to think they will recover.
In these volatile times, many corporations fit this description to a T. Let's discuss two of them: Teladoc Health (TDOC 0.30%) and Zoetis (ZTS 1.06%).
1. Teladoc
Teladoc is one of the leaders in the telemedicine industry, where it aims to create an ecosystem of physicians and services that can cater to as many medical needs as possible. Beyond the basic consultations and referrals that doctors can conduct with patients, Teladoc seeks to focus on specialties that seem underpenetrated and will only become more important with time.
The telehealth giant is making progress on that front. Teladoc's mental health platform, BetterHelp, is one of its fastest-growing units, which isn't too surprising considering that the prevalence of mental health issues increased during the pandemic. In the company's third-quarter earnings conference call, CFO Mala Murthy singled out BetterHelp as the biggest driver of Teladoc's revenue growth of 17% year over year to $611 million during the period.
Teladoc is also making progress within its chronic care unit. It recently reported multiple health plans looking to partner with the company to offer chronic care services. These examples highlight Teladoc's opportunities. Many people aren't getting the therapy they need, often due to cost or accessibility. Meanwhile, chronic illnesses are on the rise.
Teladoc allows providers to save on expenses and costs, which benefits customers with lower prices. Its BetterHelp platform offers cheaper therapy sessions than average. And as far as accessibility is concerned, even those patients who don't live anywhere near a therapist's office only need a reliable internet connection and a mobile device to access virtual care services. Teladoc's overall business has continued to make headway.
In the third quarter, the company's U.S. paid memberships grew by 10% year over year to 57.8 million. It also reported 4.6 million total visits, an increase of 14% year over year. Teladoc has lagged the market this year, partly due to impairment charges related to its 2020 acquisition of Livongo Health that sank its bottom line. But most of these non-cash expenses should be in the rearview mirror now.
The company's business seems well-positioned to ride the growing telemedicine market. And after dropping by 72% in the past year, its shares look like a buy at current levels.
2. Zoetis
Animal health leader Zoetis hasn't had the best year. The company is feeling the pressure of economic headwinds, such as inflation, affecting its overall results. Unfavorable currency exchange rate dynamics have also affected Zoetis' revenue growth. In the third quarter, the company's top line increased by 1% year over year as reported -- or by a more impressive 5% year over year operationally -- to $2 billion.
On the bottom line, Zoetis' net income came in at $529 million, dropping 4% on a reported basis compared to the year-ago period. Note that supply constraints were a key reason behind the company's poor performances, as it was unable to meet the demand for its products. While not ideal, this shows that the need for Zoetis' products is higher than what its recent results indicate.
The current supply chain issues won't persist forever, although they will likely still be present well into next year. Looking beyond the current crisis, though, the animal health industry is still growing. Analysts at Grand View Research expect it to clock a compound annual growth rate of 10% through 2030. That's not bad at all, and Zoetis is more than capable of being one of the key winners.
It boasts an impressive portfolio with more than 300 product lines, is a leader in most markets worldwide where it is present, and has 14 products that generate over $100 million in annual revenue. Zoetis is also an innovator. Although there is little public data on the company's pipeline, the sheer breadth of its portfolio is a pretty good indicator of its ability to develop new products.
In early 2022, Zoetis earned a trio of regulatory approvals, including one for Apoquel, which received marketing authorization in Europe as a tablet indicated to treat itch and inflammation in dogs.
Zoetis CEO Kristin Peck said it best: "As the leader in animal health, we have the pipeline, market leadership positions, global scale and financial strength to continue outpacing the market." Zoetis has outpaced the market in the past, and it should continue to do so long after economic conditions improve. Investors who get in now will be glad they did so in 10 years.
Don't be a prisoner of the moment
Teladoc and Zoetis aren't attractive just because they are down. Both companies are facing temporary issues, and those challenges haven't stopped their progress in their respective industries. Given that both markets still have growth potential, it's a good bet that these healthcare stocks will come out of the current downturn even stronger than before.
