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After a tough 2022 and gains in 2023, it's fair to say the stock market is probably on the way to better days. In any case, history tells us that bear markets, such as the one that began in 2022, are temporary and always lead to bull markets. So, a bull market is indeed coming, and that means it's a great idea to prepare for it by buying stocks that could excel in such an environment.
One way of identifying them is by choosing stocks that have suffered in the tough market -- but still have great long-term potential. Two such stocks are Teladoc Health (TDOC +0.02%) and Pfizer (PFE 0.02%). They've each dropped 50% or more over the past two years. Here, Motley Fool contributors Adria Cimino and Keith Speights discuss why both healthcare players make great buys ahead of the next bull market.
Image source: Getty Images.
Adria Cimino (Teladoc Health): Teladoc soared during the early days of the pandemic as people flocked to online medical visits, but as that movement cooled down, so did the shares' performance. In fact, Teladoc shares have tumbled more than 90% from their peak in 2021.
Though the telemedicine giant continued to deliver increases in revenue and visits, the company moved further away from profitability -- especially after reporting billions of dollars in non-cash goodwill impairment charges linked to an acquisition. And that didn't please investors.
But Teladoc has taken action to turn things around, and its move has started to bear fruit. Early last year, Teladoc pledged to balance its efforts to drive revenue growth with efforts to favor profitability. Throughout the year, its quarterly results surpassed its goals. Teladoc's commitment to whole person care and its strengths in chronic care have also helped it increase revenue and gain new members.
These two areas could help this market leader stay on top for two reasons. A service addressing all of a person's healthcare needs is convenient -- so it's easy to imagine members staying within the system rather than making appointments with other healthcare providers outside of it. Expertise in chronic care is also vital, considering that almost half of Americans have at least one chronic condition.
Teladoc already serves more than half of Fortune 500 companies and has said in recent times that it's won over clients from competitors thanks to its whole person offerings. So Teladoc is already in a position of strength. If the company can make progress along the path of profitability, the shares -- now trading at nearly their lowest ever in relation to sales -- could take off. And a bull market environment, which generally favors growth companies, may offer Teladoc an additional push.
TDOC PS Ratio data by YCharts
Keith Speights (Pfizer): It might seem as if everything is going in the wrong direction for Pfizer. The big drugmaker's revenue declined 42% year over year in the first nine months of 2023. Earnings plunged 79%. Unsurprisingly, Pfizer's share price is also more than 50% below the peak set in late 2021 and is down more than 40% over the last 12 months.
However, I think there's a much better story for Pfizer than many investors realize. Those negative trends just mentioned are almost entirely due to sinking demand for the company's COVID-19 products. It wouldn't surprise me, though, if 2024 turns out to be the trough year for COVID-related sales.
There are several reasons to be encouraged about Pfizer's prospects looking beyond COVID. The company expects to add around $20 billion in annual revenue by 2030 from new products and new indications for existing products. Management thinks that another $25 billion in additional annual revenue will come from business development deals.
I view Pfizer's projections as quite attainable. The drugmaker has already launched several new products that should be key to its success, including RSV vaccine Abrysvo and multiple myeloma drug Elrexfio. Pfizer has also been busy on the business development front, acquiring Biohaven and Global Blood Therapeutics in 2022 and Seagen in 2023.
We can't ignore Pfizer's dirt cheap valuation, either. Shares currently trade at a forward earnings multiple of just over 13. Even if we assumed that the company wouldn't make a penny from its COVID products going forward, Pfizer's valuation still looks more attractive than its big pharma peers'. Those COVID products will rake in a lot more than a penny, though: Pfizer projects that 2024 combined sales of Comirnaty and Paxlovid will total around $8 billion.
Last, but not least, Pfizer's dividend yield stands at nearly 5.7%. Thanks to this dividend, the stock won't have to achieve huge gains to deliver market-beating total returns.
The next bull market could boost both of these struggling yet promising stocks. But most importantly, these companies have what it takes to excel -- not just in one particular market phase, but over the long term. That's why it's a great idea to get in on them now, while they're trading at reasonable valuations, and potentially benefit as they progress toward their goals over time.