Merging company

3 best healthcare stocks to buy for January

Healthcare can be a wonderful industry for investors. It is worth billions of dollars worldwide and has a constant need for innovation. People will always seek cures for disease and a better quality of life.

But sometimes the stock market can do things that don’t make sense, including selling emerging healthcare stocks that bring new business models and new technologies to the industry. The three companies below are unpopular right now, but they could potentially be good for both patients and your wallet – and it’s a real win-win for all.

Image source: Getty Images.

1. Teladoc Health

Telemedicine has been a big topic during COVID, especially at the height of lockdowns when patients were either scared or at risk of infection, choosing instead to connect with healthcare providers digitally. Teladoc Health (NYSE: TDOC) has played an important role in meeting this need and has thus grown rapidly. In 2020, revenue increased 98% compared to 2019 while the number of digital visits increased by 156%.

TDOC Revenue Graph (Quarterly YoY Growth)

TDOC revenue (quarterly growth year-on-year) given by YCharts

Recently, growth has started to slow as people get vaccinated and return to their physical care providers. However, it seems highly likely that telehealth will always have a place in our larger health care system. Digital care can help patients in remote areas or those who live far from a specialist they need.

Teladoc’s business goes beyond simply viewing patients on a screen. The company has just launched Primary360, an integrated suite of digital care products to cover all areas of a patient’s needs, including primary care, mental health and chronic disease.

The stock has fallen steadily throughout 2021, leading it to a price-to-sales (P / S) ratio of just 6.5, lower than its pre-COVID valuation before the business grew significantly. But management is forecasting revenue growth of 25-30% per year through 2024, and I think the stock price could follow that growth rate as the valuation has become very depressed.

2. The health of him and his

Some might argue that telehealth is a commodity, so companies need to create customer value in other ways. The health of him and his (NYSE: HIM) puts the consumer’s branding on health care. It targets people (often younger) with telemedicine services for a host of potentially embarrassing conditions like hair loss and erectile dysfunction, then sells them supplements and medications on a subscription plan.

The company went public a year ago by merging with a SPAC (Société Spéciale d’Acquisition). Hims & Hers topped analysts’ quarterly earnings estimates as a public company and recently raised its 2021 revenue forecast by 29% to $ 265 million.

However, the stock has fallen more than 60% in the past year despite this growth. Investors might be concerned about the competitive landscape. There is nothing proprietary about Hims & Hers or what they sell. There are competitors, both private (like Roman) and publicly traded (like the healthcare giant UnitedHealth Group).

But instead of fearing the competition, I would look at the level of execution displayed by management. CEO Andrew Dudum noted in the company’s third quarter 2021 earnings announcement that 88% of customers stay on the platform from year two to year three. In other words, customers don’t leave.

The stock is currently trading at a low single-digit P / S ratio and management expects revenue growth of around 78% this year, so it appears that there is a favorable risk / reward ratio with Hims & Hers.

3. Novocure

Oncology is a huge niche in health care, as cancer kills nearly 10 million each year. Novocure Limited (NASDAQ: NVCR) has developed a medical device that disrupts the growth of tumor cells by exposing them to controlled electric fields. This technology is currently used to treat patients with glioblastoma and mesothelioma.

These conditions are less common than other types of cancer, which limits the potential use of the Novocure device. However, the company is in the process of being approved with the Food and Drug Administration (FDA) for more common cancers like non-small cell lung cancer, the most common form of cancer – about 84% of the 2,3 Millions of lung cancer patients diagnosed each year are non-small cell.

If Novocure receives FDA approval for non-small cell lung cancer, it will significantly increase the company’s potential market. Glioblastoma affects approximately 250,000 people worldwide each year, or only one tenth of non-small cell lung cases. Novocure’s device is patented, making it the only company with this device. If it is widely adopted to treat other types of cancer, almost all of this growth will go to Novocure.

NVCR Free Cash Flow Graph

NVCR Free Cash Flow given by YCharts

The stock has fallen steadily over the past year, down 55%. Additionally, Novocure’s net income declined further due to its spending on FDA approvals for new types of cancer. The good news for investors is that Novocure generates free cash flow, which helps fund research and development.

Without a strong catalyst, the share price could drift for now as Novocure’s existing business specializes in a rare type of cancer. But receiving FDA approval for non-small cell lung treatments would be an absolute change for the company, so investors who want to own the stock should consider buying it ahead of the FDA’s decision later in the day. 2022. At its current level, the stock could present a solid opportunity.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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