Telehealth, which is the distribution of healthcare services and information using electronic information and/or telecommunication technologies, is one of the fastest growing segments of the medical sector. And that’s good news for telehealth stocks.
According to McKinsey & Co., the novel coronavirus pandemic has caused a “massive acceleration in the use of telehealth” in the U.S. and around the world. Research from McKinsey shows that 46% of U.S. consumers have used some form of telehealth this year to replace cancelled in-person doctor visit and other healthcare related appointments. That’s up from 11% of Americans who used telehealth services in 2019. The consulting firm says that the rapid acceleration of telehealth use could mean that as much as $250 billion of current U.S. healthcare spending could become digital and virtual.
However, the question is: how can investors monetize this shift in how people access and receive medical care?
On this note, business professor Anjana Susarla of MSU BRoad College says:
“The pandemic has made it imperative to have more innovation in online education, telemedecine, virtualization of at least some types of services. These are all areas where cutting edge technologies and artificial intelligence methods are being used.”
So, with all of that in mind, here are seven telehealth companies that are leading the shift to digital medicine. And the potential of their stocks to outperform in coming months and years:
- GoodRx (NASDAQ:GDRX)
- Teladoc Health (NYSE:TDOC)
- Livongo Health (NASDAQ:LVGO)
- Humana (NYSE:HUM)
- CVS Health (NYSE:CVS)
- American Well (NYSE:AMWL)
- Anthem (NYSE:ANTM)
Now, let’s take a closer look at each one.
Hot Telehealth Stocks: GoodRx (GDRX)
Santa Monica, California-based company GoodRx operates a telemedicine platform, free-to-use website and mobile app that track prescription drug prices in the U.S. and provide coupons for discounts on medications. In fact, GoodRx has the ability to check as many as 70,000 pharmacies across the U.S. to find the best available prices.
The company held its initial public offering (IPO) on the Nasdaq exchange on Sept. 23, and its share price closed trading that first day up an impressive 53%. Clearly, investors see a lot to like in GoodRx. The company been consistently profitable since 2016, and earned $55 million in profit for the first half of 2020. This is up from $31 million in the first half of 2019. Also, revenues for the first six months of this year were $257 million — up from $173 million in the first six months of 2019.
Founded in 2011 by Facebook veteran Doug Hirsch, GoodRx has a social mission in that its focus is to help lower the costs of prescription medications for Americans. And since the global pandemic, the company has aggressively expanded into new sectors of healthcare. This includes building out a “telemedicine marketplace feature where patients can compare the costs of different telemedicine providers.”
Moreover, right before the pandemic reached the U.S. in March, GoodRx bought telemedicine provider HeyDoctor. GoodRx says that consumers can use its telemedicine platform to make a telehealth appointment, see a physician virtually and then get medications delivered directly to their homes. And moving forward, the company’s focus remains on building out more telemedicine services.
Many prominent names see GDRX stock as a solid buy. And since its IPO, the stock has traded as high as $64.22 per share, although it has pulled back to a shade over $50 per share in recent weeks. Thus, now could be a good buying opportunity for GoodRx among telehealth stocks.
Teladoc Health (TDOC)
Teladoc Health is a company, and stock, that has gone gangbusters since the pandemic broke earlier this year. That’s because Covid-19 plays directly into Teladoc Health’s strengths.
The company is a multinational telemedicine and virtual healthcare company. Specifically, Teladoc Health uses telephone and videoconferencing software and mobile apps to provide on-demand remote medical care to patients in the U.S. and around the world. Claiming to be the very first telemedicine company in America, Teladoc Health was launched in 2002. And by the end of 2019, it was active in 130 countries and served 27 million members around the world.
Since the start of this year, TDOC stock is up more than 163% to about $220 per share from only $83.26 on the first trading day in January. The share price actually rose in March of this when stock markets around the world were crashing. Investors see a bright future for Teladoc Health in the post-pandemic world where more and more people are expected to access healthcare services virtually.
That said, analysts seem to feel that this member of the telehealth stocks has more room to grow. The median 12-month price target of 26 analysts is $246 per share, suggesting an 11.4% increase from its current price.
Hot Telehealth Stocks: Livongo Health (LVGO)
Livongo Health is a digital health company focused on helping people manage chronic diseases and conditions such as diabetes and chronic obstructive pulmonary disease (COPD). The company is particularly known for its diabetes-management technology, which helps diabetics manage their blood sugar levels.
Overall, Livongo Health says its approach is a win-win as the company’s digital services lead to better health outcomes for people and lower costs for the healthcare system. When Livongo Health had its IPO last year, the event was seen as bellwether to gauge if there would be any interest in the digital health space. Fifteen months later, LVGO stock is up 271% from its IPO price and now trades at just over $140 per share.
In this year’s second quarter, at the height of the global pandemic, Livongo’s sales rose 125% year-over-year — and momentum seemed to continue accelerating through the summer months. Livongo estimates that it is just starting to tap into a $45 billion market in helping people manage chronic illnesses such as diabetes and hypertension; And that’s in the U.S. alone.
Furthermore, Livongo agreed in August to merge with the aforementioned Teladoc Health in a stock and cash deal that values the combined companies at $18.5 billion and will create a telehealth powerhouse. The deal is expected to close by the end of this year, and the new combined company will be well-positioned to capitalize on two major trends: the rise of telehealth and the increase in people with chronic medical conditions. LVGO and TDOC stock will trade under a new company name and ticker symbol once the merger is completed.
Humana is the third-largest health insurance provider in the U.S. And when it comes to telehealth, Humana is leading the way — promising people quality medical care “…without leaving your couch.” Specifically, the company offers virtual visits with doctors via secure video or phone.
That said, telehealth is increasingly part of Humana’s strategy, a direction the company has accelerated since the Covid-19 pandemic forced people to shelter-in-place. But the pandemic hasn’t harmed Humana’s business at all. On the contrary, business has boomed this year as patients defer elective procedures due to fears of contracting Covid-19 — a trend likely to continue until a vaccine against the virus is widely available.
In the second quarter of this year, the company paid out 76.4% of the insurance premiums it collected for patient medical costs. That might seem high, but it is actually a lot lower than the 84.4% it paid out in the first quarter of 2020. Overall, HUM stock is up nearly 100% from its March low to $428 a share. However, the stock is currently trading below its 52-week high of $434.07 a share, suggesting a potential buying opportunity for investors.
Indeed, analysts have a median price target of $450.50 on Humana stock. Therefore, investors on the hunt for a deal should consider picking up this stock before it inevitably moves higher.
Hot Telehealth Stocks: CVS Health (CVS)
CVS Health is a lot more today than just a pharmacy chain, and the company certainly provides its customer base with more than just in-store and online shopping.
With its 2018 acquisition of Aetna, it now also provides medical coverage. And it is expanding its services beyond its retail store locations to provide customers with a broader healthcare experience by increasingly using virtual consultations and online ordering. So while customers can use its website to book in-person visits with medical professionals, they can also schedule telehealth visits. That service is available year-round, 24 hours per day, at a cost of $59 per visit. The company also accepts insurance from a growing number of providers for its telehealth services.
Additionally, CVS Health is in the process of opening what it calls “HealthHubs” in 1,500 of its retail locations, where customers will be able to meet with dietitians and other healthcare professionals who can help them manage chronic conditions such as high cholesterol . The company says it’s on track to complete that roll out by the end of 2021, despite the Covid-19 pandemic.
Overall, the company’s stock price has been hurt by the closures of many of its retail outlets, which have hurt sales. But investors should look to this company to rebound as it further diversifies its business and the economy recovers from the pandemic.
American Well (AMWL)
American Well, commonly called AmWell, is a telehealth company that also had its IPO in September this year. And it did extremely well, jumping 42% in its first day of trading.
Of course, AmWell is backed by Google (NASDAQ:GOOGL), which purchased $100 million shares of AMWL stock in a private placement that was held at the same time as the IPO. Having Google in its corner is a big vote of confidence in AmWell, which works with 55 health plans that, combined, support over 36,000 employers and represent more than 80 million Americans. In its IPO prospectus, the company said that telehealth visits nearly tripled to 2.2 million in the second quarter from the previous three months owing to pandemic restrictions on in-person medical care.
Overall, since its IPO, AMWL stock has risen 60% to $37 per share. It’s still early days, but there is every reasons to believe that the stock price will continue trending higher. Amwell reported revenue of $149 million in 2019, up 31% from revenue of $114 million in 2018. Amwell also says it has powered over 5.6 million telehealth visits for its clients, including more than 2.9 million in the first six months of this year. Going forward, the company plans to expand into new markets such as Medicare and Medicaid, as well as add government clients and clinical partnerships such as its existing collaboration with Cleveland Clinic and push into new international markets overseas.
Thus, it seems like the sky is the limit for AmWell.
Hot Telehealth Stocks: Anthem (ANTM)
Like other companies discussed in this article, Anthem achieves real cost benefits using telehealth because it is a healthcare insurer. The company’s research says that the average costs for a telehealth session are $100 less than for a typical visit to the doctor’s office. During the pandemic this year, the company has moved to open greater access to virtual care and waived cost-sharing for telehealth and phone visits with doctors, nurses and other healthcare professionals, including for mental health services. Overall, Anthem’s goal is to get its customers feeling good about working with a medical practitioner remotely and via video conference.
Other reasons to like Anthem are its healthy balance sheet, which, in the second quarter, had operating revenue of $29.2 billion, a 15.9% increase over the same quarter of 2019. Net income was $2.27 billion, slightly down from last year, and it provides a dividend of $3.80 per share.
Moreover, ANTM stock has risen nearly 55% from its March low earlier this year and now trades at $292 per share. However, the stock is still well below its 52-week high of $309.10 per share. Also, analysts see a median price target of $330 for the stock over the next 12 months, suggesting a 12.7% upside potential. Therefore, this is one of the top telehealth stocks to add to investors’ watch list.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.