When looking for bargains at a store, you might go to the sale rack. With the stock market, you might look to some of the stocks that have tumbled over the past several months. Even though the three major indexes have climbed since the start of the year, many top companies have yet to join the rally.
Of course, not every item on sale is a bargain in the department store and on the stock market. But some are, so it's worth searching for these treasures, and two Motley Fool contributors have found a couple worthy of your attention.
Telehealth leader Teladoc Health (TDOC -2.40%) has slipped 11% over the past year, and big-pharma Pfizer (PFE 0.55%) has retreated 20% so far this year. Let's take a closer look at these two stocks to buy right now.
Making progress on the path to profitability
Adria Cimino (Teladoc): Teladoc shares plunged 74% last year as investors worried about the company's ability to reach profitability. The telemedicine giant had reported billions of dollars in non-cash goodwill impairment charges linked to a 2020 acquisition.
The stock still is down 11% over the past year, and that's left it trading close to its lowest ever in relation to sales. Why is this a buy? Because Teladoc is a leader in a high-growth market -- and the company is making progress on its path to profitability.
Telemedicine is set to grow in the double digits this decade. Teladoc already serves more than half of Fortune 500 companies, but there's still plenty of room for this player to grow by adding new members and increasing revenue per member. Teladoc sells both integrated health plans to employers and organizations, as well as access to its mental health service -- BetterHelp -- directly to individuals.
Earlier this year, Teladoc said that it would work to better match its cost structure to today's growth rate. As part of this, the company cut some jobs and office space. And Teladoc is favoring the idea of balancing growth and margins.
This strategy already is showing promise. In the first quarter, Teladoc's consolidated revenue and consolidated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) surpassed its forecasts.
Importantly, Teladoc holds $900 million in cash and pledges to deliver $100 million in free cash flow this year. It reported almost $50 million in free cash flow over the 12 months through April.
Now let's take a quick look back at that acquisition I mentioned. Teladoc bought Livongo in 2020. The purchase weighed on Teladoc because it bought the company back when valuations were soaring. As we know, valuations then dropped.
But keep in mind that the addition of Livongo -- a specialist in chronic care -- could eventually pay off for Teladoc. After all, almost half of Americans suffer from at least one chronic condition.
All of this means that, if you get in on Teladoc, you can benefit today as it recovers -- and possibly over the long term from significant growth.
Look deeper into this beaten-down pharma stock
Keith Speights (Pfizer): It's easy to understand why Pfizer's share price has plunged more than 20% year to date. The big-drugmaker's revenue and profits are falling mainly because of sinking sales of its COVID-19 products. Pfizer also faces the loss of exclusivity of multiple top-selling drugs over the next few years.
But are Pfizer's COVID and patent cliffs reasons to avoid the stock? I don't think so. If investors look deeper, they'll find a lot to like about this beaten-down pharma stock.
First of all, Pfizer isn't really jumping off of a COVID cliff. The company expects that sales of its Comirnaty vaccine and Paxlovid antiviral therapy will rebound in 2024. Pfizer anticipates that the launch of its combination COVID-flu vaccine could provide an especially big boost beginning in 2025.
On the other hand, the patent cliff is real. Pfizer will lose patent protection for several of its best-selling products over the next four years, including Eliquis, Ibrance, Xeljanz, and Xtandi.
Again, though, digging deeper reveals that Pfizer should more than offset any sales declines with its new product launches over the next year. There's even better news, too: The company thinks it will add roughly $25 billion in new revenue by 2030 from business development deals.
The bottom line is that Pfizer could grow its revenue by around 10% annually through the second half of this decade. It offers a dividend yield of over 4%. The stock is also cheap, with shares trading at a forward earnings multiple of below 12. That's a lot to like.
In the doldrums... for now
Teladoc and Pfizer shares are in the doldrums... for now, but this may not last long. Both companies have what it takes to excel over time and are big players in their respective markets.
Revenue prospects look bright. And in the case of Pfizer, you'll benefit from passive income as you wait for the stock to take off. Buying these two stocks now, while they're on sale, looks like a great idea.
