Investing in the stock market facilitates exposure to companies across sectors. One can add disruptive tech stocks to a portfolio or buy shares of companies that are part of emerging sectors, such as electric vehicles (EVs).
However, if one is seeking investments in stocks that have low volatility, one needs to identify companies that are recession-proof and can perform well across business cycles.
The healthcare space is considered an industry that is immune to economic challenges because people typically prioritize spending in this area. So, here we look at two healthcare stocks–Clover Health (CLOV) and Teladoc (TDOC)–that are gaining in popularity among investors to analyze which is currently the better buy.
Clover Health stock is down 49% from record highs
Backed by noted investor Chamath Palihapitiya, Clover Health went public earlier this year via an SPAC.. However, the stock is currently trading 49% below its all-time high, which should make it attractive to contrarian investors given its enviable growth rates.
Clover Health operates as a Medicare Advantage Insurer in the U.S. and competes with giants CVS Health, Anthem, and United Healthcare. this space. In fact, the big four insurance players in the U.S. account for 70% of Medicare enrollees.
Clover Health stock has been pummeled in the wake of a Hindenburg Research report that accused the company of misleading investors. Apparently, Clover failed to disclose DoJ (Department of Justice) inquiries to shareholders before it went public. The report also disparaged Clover Assistant, its software platform for physicians, and outlined several other discrepancies associated with the company.
Nevertheless, Clover is forecast to grow its revenue at a fast clip and the current stock price retreat provides investors with a buying opportunity. In 2020, Clover Health reported $673 million in sales, a rise of 45.6% year over year. Its gross profits were up 12.2% year over year at $82.4 million, but the company also reported a $91.6 million net loss.
Palihapitiya is optimistic that Clover will turn profitable by the end of 2023. However, the company’s management expects its net loss to widen to between $170 million -$210 million in 2021.
Wall Street analysts that cover the company expect its sales to rise by 22% to $822.58 million, which suggests the stock is valued at a 4x forward price to sales multiple, which is reasonable considering its growth estimates.
Teladoc has underperformed the markets in 2021
Another healthcare stock that is under the gun is Teladoc. Shares of this health-tech company are down 51% from record highs. Year-to-date, TDOC stock has lost 28.3% compared to the S&P 500’s 11.1% return.
However, we think Teladoc is a solid long-term bet given its rapidly expanding market, which is forecast to hit $250 billion annually in a post-pandemic market. Analysts forecast Teladoc sales to reach $2 billion in 2021, giving the company sufficient opportunity to expand its top line in 2021 and beyond. While Teladoc is currently unprofitable, Wall Street has forecast its profit margins to improve from a $5.36 loss per share in 2020 to a $1.02 loss per share in 2021.
In Q1, Teladoc reported $453.7 million in revenue, up 151% year over year, compared to consensus estimates of $451.9 million. Its adjusted net loss stood at $29.6 million or $0.40 per share compared to estimates of a net loss of $0.59 per share. Teladoc managed to improve its EBITDA significantly to $56.6 million in Q1, up from just $10.7 million in the prior-year period.
The final takeaway
Analysts are bullish on both stocks. They expect Teladoc shares to rise by 60% in the next 12-months, while Clover Health shares might gain 56% in this period. Teladoc stock is trading at a higher price to sales multiple of 11x compared to Clover Health.
However, we think Teladoc’s leadership position in the telehealth market in the U.S. as well as solid growth forecasts and a massive market makes it a better bet. This is especially the case given that Clover Health is competing with established giants and grappling with regulatory issues.
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CLOV shares were trading at $7.78 per share on Wednesday morning, down $0.35 (-4.31%). Year-to-date, CLOV has declined -53.61%, versus a 9.46% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More...
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