Healthcare stocks may not be the most exciting investments for some, but overlooking these businesses could mean you pass up great companies. These are the businesses that provide essential products and services in a wide range of market environments and economic landscapes.
While not all healthcare stocks are created equal, finding intriguing businesses to put cash into and adding those to a well-diversified basket of investments can magnify your returns over the long run. Here are two stocks to consider adding to your buy basket right now that are trading at a discount but could present a solid value proposition for long-term investors.
1. Teladoc
Teladoc Health (TDOC 2.86%) has certainly disappointed investors over the last few years following its pandemic-period successes. Decelerating growth, deep unprofitability, and a series of management changes (including the unexpected departure of longtime CEO Jason Gorevic) have understandably led many investors to sell off the stock in droves.
The company just appointed a new CEO, Chuck Divita, who comes from an extensive background in the healthcare space. Formerly, Mr. Divita held the roles of executive vice president and CFO at GuideWell, a private health solutions company that also runs Florida Blue, one of the top health plan providers in the state of Florida.
In terms of its growth story, most of Teladoc's recent unprofitability has been related to non-cash expenses, including impairment charges for pandemic acquisitions and stock-based compensation. Teladoc reported another net loss, according to generally accepted accounting principles (GAAP), in the first quarter of 2024, totaling $82 million, or $0.49 per share, a sizable improvement from the billions in net losses it was reporting a few years ago.
NYSE: TDOC
Key Data Points
The company brought in positive adjusted earnings of $63 million in Q1, a 20% increase from one year ago. Revenue grew modestly, rising 3% year over year to $646 million. This was driven by a 1% increase in access fees revenue and a 14% increase in other revenue from the year-ago quarter.
Breaking down segment enrollment, it's worth noting that integrated care members rose 8% year over year, while its chronic care business finished the quarter with 9% more patients enrolled than one year ago. Bear in mind that the company serves about 90 million virtual care members worldwide. Teladoc also brought in operating cash flow of about $9 million in the three-month period.
The stock is trading down by around 60% from its position one year ago. Now, I'm not here to say that investors should go all in on Teladoc and scoop up large quantities of the stock. It has a lot to prove to its shareholders, which still includes myself, and there's work to do to get back to solid financial footing.
For investors with a well-diversified investment portfolio and a healthy risk appetite, a small position in this stock could be a worthwhile endeavor. For those still holding onto the stock, like myself, it might be worth waiting to see how the company performs under new leadership and as it works to expand its existing leadership in a broad, growing, addressable market.
2. DexCom
DexCom (DXCM 2.53%) is one of the leaders in the diabetes care space. The company makes continuous glucose monitors (CGMs), which feature a range of use cases to help patients track blood sugar levels. CGMs can be used by individuals with both Type 1 and Type 2 diabetes and, in some cases, by those with prediabetes.
Currently, DexCom controls the lion's share of the CGM market, with a footprint amounting to approximately 40% of this multibillion-dollar industry. It shares control of this space with its two main competitors, Abbott Laboratories and Medtronic. As the largest player in this space, DexCom stands to benefit considerably from the rising demand for its products as the prevalence of diabetes accelerates worldwide. There is also room for multiple successful players in this space.
Some estimates show that there will be as many as 643 million individuals living with diabetes worldwide by the year 2030. Bear in mind that approximately 1.5 million individuals are diagnosed with diabetes each year in the U.S. alone. And with approximately 2 million lives using its CGM products at the time of this writing, DexCom has plenty of growth opportunity left to pursue.
NASDAQ: DXCM
Key Data Points
DexCom has seen shares fall by approximately 15% over the trailing 12 months, and not because growth is slowing. On the contrary, revenue is rising steadily, the company is profitable, and its cash position is looking increasingly attractive.
This stock fluctuation is likely due to changes in investor sentiment, the rise of therapies targeting diabetes, and the GLP-1 (glucagon-like peptide) drug craze that has hit both the weight loss and diabetes markets, dragging diabetes device stocks down across the board in recent months.
However, for long-term investors, these factors aren't necessarily a reason to overlook the business. From a financial perspective, the company is doing extremely well. Revenue totaled $921 million in the first quarter of 2024, while net income came in at $146 million. Those figures represented increases of 24% and 198%, respectively, from one year ago. It also boasted about $3 billion of cash and investments on its balance sheet.
The company has enjoyed robust growth from the launch of its latest-generation CGM, the G7, which is marketed as the most accurate on the market with the fastest warm-up time. DexCom also recently garnered approval from the U.S. Food and Drug Administration for its Stelo CGM, which is specifically for people with type 2 diabetes who are not using insulin and is the first glucose biosensor the agency has approved for use without a prescription.
This represents DexCom's entry into a significant and untapped portion of the diabetes care space, featuring up to 25 million lives by management's estimations. Shares may be down now, but this is a quality business with a superior growth runway that could pay off for faithful investors over the next five to 10 years. Even a modest position in this stock on sale might be well worth the effort and capital.
