After last year's downturn, investors are finally witnessing a solid performance by equity markets. The S&P 500 has technically been in a bull market since June 8, when it closed 20% up from its most recent low. And given that bull runs last for an average of 2.6 years (according to some research), this could only be the beginning.
There are plenty of excellent stocks to consider buying to ride this upward wave. Let's consider two solid candidates: Teladoc (TDOC -2.40%) and Tandem Diabetes Care (TNDM -0.90%). These stocks remain down over the trailing-12-month period, but here is why they could move in the opposite direction in the long run.
1. Teladoc
Slowing revenue growth and worsening net losses are a bad combination for any company. That's what Teladoc dealt with last year, but the company has improved, at least somewhat, on one of those fronts in 2023. Teladoc is recording much better bottom lines than in 2022, although it remains unprofitable.
TDOC Net Income (Quarterly) data by YCharts.
To deliver stronger performances on the stock market, Teladoc will have to improve on both the top and bottom lines, and there are good reasons to believe it has what it takes. First, some general considerations about the telemedicine market. Telehealth visits with a licensed medical professional can often serve the same purpose as in-person visits. But the former are much more convenient for patients and physicians and likely result in lower costs for both.
For doctors, receiving patients in an office carries more overhead costs than doing it virtually, while patients can save on trip-related expenses. So, expect telemedicine to grow as health systems shift some medical care to virtual channels. Teladoc's revenue growth should benefit; it has built a solid brand name and arguably benefits from the network effect. That is to say, the value of its platform increases with use.
Patients will seek out telemedicine networks with the highest number of physicians, specialties, etc., and the more patients join a platform, the more it becomes attractive to medical professionals. Teladoc ended the second quarter with 85.9 million U.S. integrated care members (where it connects patients with a range of health professionals, from general practitioners to specialists). That was an increase of 7% year over year.
That's in addition to the company's mental health unit, BetterHelp, which had 476,000 members in the second quarter, 17% higher than the year-ago period. And Teladoc's chronic care unit (for chronic illnesses) had about 1.1 million members, a 7% year-over-year jump. Teladoc has plenty of room to grow across all three segments, especially in mental health, an area with a dire need following the pandemic-induced increase in depression and anxiety.
BetterHelp charges lower fees than traditional on-site therapy, so it is helping make it more accessible. On the bottom line, Teladoc isn't that far off from breaking even. The company's margins have grown over time and currently sit above 70%.
The company has been trimming its workforce to cut costs. But Teladoc's highest expenses tend to come from marketing and advertising, which should decrease as it becomes better established. That's why profitability isn't that far off for the company. And although its shares remain down, patient investors who get in now should be rewarded down the road.
2. Tandem Diabetes Care
Tandem Diabetes Care develops and markets innovative insulin pumps. It makes most of its money from its t:slim X2 pump, a device with plenty of perks. It is small and discreet, user-friendly (it can be updated remotely and charged with a run-of-the-mill micro USB charger), and convenient when paired with a continuous glucose monitoring device such as DexCom's G6 to automate insulin delivery and eliminate the use of painful fingersticks.
Tandem's crown jewel has shown some success, although the company's growth rate is also declining. In the second quarter, Tandem Diabetes Care's revenue of $195.9 million dropped by about 2.2% year over year. The company's pump shipment of 29,500 was lower than the 32,000 thousand reported in the year-ago period. It ended the quarter with an installed base of 437,000 patients, 16% higher than the prior-year quarter.
Challenging economic conditions, including inflation, have affected the company's business, and that's what we are seeing unravel as its top line and pump shipment decline. But Tandem Diabetes Care still has a long runway for growth. Diabetes is a worsening problem. The company estimates that there are about 8.1 million eligible patients for its pumps where it does business, most of whom have yet to make the switch from painful multiple daily injections.
Further, as its installed base expands, it will make more money from selling accessories that accompany its pump (such as cartridges) and pump renewals. Tandem estimates a renewal cycle of five years. The company's revenue growth should bounce back with these opportunities as the economy improves and as it launches its newest device, the Tandem Mobi Insulin Pump. The U.S. Food and Drug Administration recently cleared it, and it is the "world's smallest durable insulin delivery system," according to the company.
Tandem's newest device will help decrease its expenses, as it estimates that the Mobi is 10% to 15% cheaper to manufacture, while its cartridges cost 20% less to make than that of the t:slim X2 pump. The company expects its gross margins to rise to 65% as the Tandem Mobi gains traction.
TNDM Gross Profit Margin data by YCharts.
These developments should work wonders for Tandem Diabetes Care's revenue and earnings over the medium term, and even as it remains unprofitable, it looks like a stock worth buying and keeping for a while.
