No bear market period is exactly alike, and the prolonged volatility of the past year-plus understandably has some investors frustrated. Patience and fortitude are warranted to be a long-term investor, and the current market environment continues to prove that point more than ever.
While no one can accurately predict what stocks may or may not do next, it remains an undeniable reality that there is not a single bear period from which the market has not eventually rebounded. If you want to continue building your portfolio in both the ebbs and tides of the market, there is no shortage of compelling businesses presenting great opportunities to do so.
Here are two names to consider right now.
1. Teladoc
Teladoc Health (TDOC -0.07%) hasn't been the portfolio winner many investors had hoped for over the last year, and shares of the telehealth giant have experienced far more volatility than the average healthcare stock. The biggest driver of the stock's sell-off over the last year-plus goes back to the series of hefty impairment charges that, while non-cash, plunged the company into deep unprofitability on paper. These charges were related to its pandemic acquisition of Livongo.
The days of multibillion-dollar impairment charges look to be in the rearview mirror, though. The company reported a net loss of $69 million in the first quarter of 2023, a far cry from its $6.7 billion net loss in the same quarter of 2022. At the same time, the lion's share of the remainder was due to stock-based compensation expense although this is also an accounting loss rather than an operational one.
As an investor in Teladoc, I want to see the company get to profitability as much as the next shareholder, but it's important to see where those bottom-line numbers are coming from, and most are non-cash in nature. Teladoc is also spending a lot of money on marketing costs to bring new individual and enterprise customers to its platform, which also impacts the bottom line. However, those investments would appear to be paying off already, and over the long haul, this could translate to not only continued revenue growth but also profitability.
Teladoc ended the first quarter with 85 million integrated U.S. care members (typically individuals who access the platform through their employer or insurance company); while paying users in its teletherapy segment, BetterHelp, hit 467,000; and chronic-care program enrollees surpassed one million. These user figures represented increases of 7%, 22%, and 13%, respectively, from the same quarter in 2022. Meanwhile, the company generated revenue of $629 million in the three-month period, up 11% year over year but 388% on a four-year basis.
The trajectory of the global telehealth industry is only moving forward as demand for quality and flexible options that meet the diverse needs of healthcare consumers grows. Teladoc's position in the rapidly evolving but fragmented telehealth space and the fact that it still counts more than half of the Fortune 500 as its paying clients could give it tremendous room to grow and expand, even as other winners emerge in this industry.
2. Upstart
Upstart (UPST 0.79%) has arguably faced the most challenging period since the company opened its doors just over a decade ago. Combining high interest rates and a higher risk of default has caused its artificial intelligence (AI)-centric platform to calibrate accordingly and approve fewer loans while the loans approved feature above-average interest rates compared to prior years. Institutional investors have simultaneously paused funding on loans at the same levels as in years past, and understandably, consumers are more hesitant to apply for larger loans. It's created a perfect storm.
As a result, Upstart has slipped back into unprofitability in recent quarters, and revenue has declined considerably. It's also been forced to carry more loans on its balance sheet than it normally would, given that institutional funding is down. While these are risk factors to bear in mind as a current or prospective investor, it's important to take each separately. The calibration qualities of Upstart's platform, and the fact that loan volume is down now as a result, indicate its model is working as designed.
And while institutional funding is down -- a vulnerability not entirely tied to Upstart's core business model but rather macro factors beyond its control -- the company is working to secure longer-term funding arrangements. In fact, Upstart announced that it had secured $2 billion in long-term funding for the next year in its first-quarter earnings call, a positive move in the right direction on that score.
Upstart has also made aggressive cost-cutting moves recently, including slashing its workforce by 30%. This is part of management's strategy to return to profitability. And so is the continued buildout of its platform, which relies upon the power of its AI and machine learning-based model now automating a whopping 84% of all loans it processes. CEO Dave Girouard emphasized in the first-quarter earnings call that "moving beyond our core personal loan product is critically important to reaching our potential as a business."
Further, Upstart is working on a new home equity lending product it expects to release later this year and add to its cohort of lending solutions, which includes a wide range of personal and auto loans. It closed out the first quarter of 2023 with 99 bank and credit union partners in its network, up 100% from just one year ago. It also just launched a newly upgraded AI model for its car-buying retail lending software. As of the end of the first quarter of 2023, this product had nine original equipment manufacturers (OEM) and 39 auto dealers onboarded (compared to 27 in the prior quarter).
Investors who stay with this stock through the next several quarters may find it was worth the wait, but patience will likely be warranted. However, the rising adoption of Upstart's products by lending partners and its focus on operational efficiency should help it weather this period and be poised for improved growth and returns in a healthier economic backdrop.
