Even with a recovering stock market, some companies continue to head south. Many of those corporations are dealing with company-specific issues and are being punished by investors. The good news is that if these companies can bounce back from these problems, patient investors who purchase shares now may be handsomely rewarded down the road.
With that said, let's consider two stocks down by 23% or more that could end up being excellent picks: CVS Health (CVS -0.22%) and Tandem Diabetes Care (TNDM -0.90%).
1. CVS Health
CVS Health is one of the largest healthcare players in the U.S. but has recently faced its share of issues that have contributed to its poor stock market performance. In the first quarter, the company notably lowered its 2023 earnings per share (EPS) guidance. It initially expected EPS to come in between $7.73 and $7.93, but the new range is between $6.90 and $7.12.
Investors don't respond well to changes in earnings projections when the change goes in that direction. Moreover, CVS Health's first-quarter results, although not bad, weren't great. The company's revenue increased by 11% year over year to $85.3 billion. On the bottom line, CVS' adjusted EPS declined by almost 7% to $1.65.
Still, there are excellent reasons to expect CVS Health to rebound, especially for investors in it for the long haul. Although it's best known as a pharmacy chain, CVS Health boasts an insurance arm through Aetna and a primary-care business, thanks to the recent acquisition of Oak Street Health. These three complementary units form an ecosystem whereby CVS serves patients at different stages of their medical care journey: primary care, a third-party payer in Aetna, and its medicine retail business.
Another recent acquisition CVS Health made was of Signify Health, a home health company that targets Medicare patients. Signify Health offers a range of services, including at-home health evaluations, through its network of more than 10,000 clinicians across all 50 U.S. states to help connect patients with the care they need -- including social determinants of well-being -- and improve health outcomes.
Signify Health thinks that with CVS' help, it could improve health outcomes and help cut costs -- two things that have been hot topics of debate in the U.S. over the past decade. Signify was not yet consistently profitable before the acquisition, but with the backing of CVS, its growth story could be just getting started.
CVS Health's entire umbrella will benefit from an important long-term trend: the world's aging population, since people need more medical services as they age. So, despite CVS Health's recent troubles, it's worth being patient. There's also the company's excellent dividend profile. CVS Health has increased its payouts by 21% in the past three years, and its current yield of 3.4% is much higher than the S&P 500's 1.54% average dividend yield.
CVS Health's consistent dividend makes the company more attractive to long-term investors.
2. Tandem Diabetes Care
Tandem Diabetes Care is a medical-device expert focusing on developing insulin pumps. The company currently makes most of its money through the sale of its t:slim X2 pump, but lately, Tandem's financial results haven't been impressive.
In the first quarter, the company's revenue decreased by almost 4% year over year to $169.4 million. Its growth rates have declined almost consistently over the past three years, partly due to the inflationary macroeconomic backdrop and the possibility of a recession that have affected patients and their ability to afford the company's insulin pumps, resulting in lower pump shipments than the company would have liked.
TNDM Revenue (Quarterly YoY Growth) data by YCharts.
In addition, Tandem Diabetes Care isn't profitable yet. In the first quarter, the company's net loss per share of $1.92 was much worse than the loss per share of $0.23 that it reported in the comparable period of the previous fiscal year.
How could Tandem Diabetes Care turn things around? First, it's important to note that the company still has a massive addressable market. Tandem Diabetes Care targets regions (both domestic and international) where it estimates total addressable population of people living with diabetes to be roughly 10 million . Administrating insulin is vital for many of those patients, especially those with type 1. However, many patients still rely on painful multiple daily injections (MDIs). In the U.S., only 39% of type 1 diabetes patients use insulin pumps.
Tandem Diabetes Care hopes to convert them. The company currently has an installed base of 430,000 patients, nearly half its goal of 1 million customers. The company estimates that its new customers are divided about half and half between those who convert from MDIs and those who switch from competing pumps.
One of the best selling points of Tandem's t:slim X2 is that it can be paired with continuous glucose monitoring devices, such as DexCom's G6, to help predict blood glucose levels in advance and adjust insulin delivery accordingly. The t:slim X2 isn't the only pump with this feature. Still, it's holding its own against others that have been developed by much larger companies. This is evidenced by Tandem Diabetes' relatively impressive (and growing) installed base and the fact that half of its new customers are switching from other pumps.
Once the economy improves, Tandem Diabetes' pump shipments could start growing on a year over year basis again, along with its top line. And as the company's installed base increases, revenue from supplies and accessories that go along with the t:slim X2, as well as pump renewals from existing customers (the company's renewal cycle is five years) should also increase.
Meanwhile, Tandem Diabetes Care also hopes to improve its gross margins -- to 65% by 2027, compared to 52% last year -- by reducing its manufacturing costs, among other means. Higher revenue and margins could eventually lead to profits for the medical device specialist. That's how Tandem Diabetes Care could see its share price make a solid comeback as it continues to make headway into the vast diabetes market.
