3 Stocks to Profit from the Telehealth Transformation
Telehealth stocks fell off the collective radar somewhat post-pandemic. But betting against the sector isn’t smart because healthcare’s future is undoubtedly anchored in virtual offerings for routine and non-emergent care. While some claim the pandemic accelerated telehealth by as much as 10 years, it’s inarguable that we’ve entered a new era of at-home primary and specialty care.
Last year, more than 20% of all adults had at least one telehealth visit, and the overall utilization rate increased more than 60x between 2020 and today. Of course, as with many ZIRP-era startups, some telehealth stocks don’t have what it takes to keep the lights on long-term. These three telehealth stocks are an exception, though, and represent the best-in-class for investors betting on medicine’s future.
Talkspace (TALK)
There’s a viable argument to be made that, for routine matters, future telehealth stocks will center around AI-powered diagnostics overseen by a handful of manual processes. But one healthcare sector — mental health — will likely remain centered around person-to-person interaction. And Talkspace (NASDAQ:TALK) is one of the few telehealth stocks offering mental health treatment, including psychiatric care, remotely. That point is important — most of the well-known mental health providers focus on therapy and cannot prescribe medication. Likewise, those “other guys” don’t take insurance, whereas Talkspace does, increasing its market pool.
Talkspace saw turbulence over the past few years as unprofitability, rate hikes and post-pandemic adjustments brought its share price well into penny stock territory. But TALK is rebounding rapidly, and there’s sun peeking from behind the clouds. Critically, per the company CEO, mental health is far more resilient to “return to office” trends than other healthcare services. He claimed mental health makes up 65% of all ongoing telehealth visits since “it’s an easy, accessible way to access mental therapy.”
At the same time, TALK is making rapid inroads into expanding its share of that 65% by broadening its horizons and serving Medicare and Medicare Advantage members. Those customer segments tend to be the holy grail for healthcare providers and accessing them is a major step forward for the telehealth stock.
Hims & Hers Health (HIMS)
Hims & Hers Health (NYSE:HIMS) captured one of those telehealth trends that’s obvious in hindsight but proved innovative when the company began. It offers those “embarrassing” healthcare services, like sexual wellness and hair loss, remotely and easily to avoid the hassle and discomfort associated with in-person care. HIMS also used those key services as an anchor to pivot into other peripheral services like therapy, creating a closed ecosystem that keeps customers within the HIMS platform.
In an equally innovative move, HIMS just announced a new pivot that may seem a step backward but actually serves to ensure the company’s stability. This week, Hims & Hers partnered with Hartford HealthCare to offer in-person referrals for heart health, weight loss and other medical needs. While moving towards in-person referrals may seem counterintuitive for telehealth stocks, it’s a smart play. The move lets HIMS offer existing patients a wider range of services and serves to reduce friction when managing elective healthcare needs. Like its expansion into mental health treatment, offering in-person referrals is another move towards developing a closed-loop ecosystem. HIMS will also likely benefit from Hartford providers recommending HIMS to patients with niche needs.
CVS Health (CVS)
Of course, if you don’t want to bet on a smaller upstart when picking telehealth stocks, you can always go with an existing giant that’s expanding into remote services. And few companies pivoted as effectively into telehealth services as CVS Health (NYSE:CVS). Last year, the company unveiled a 24/7 on-demand primary care and mental health service option called CVS Health Virtual Primary Care that’s proved a big hit for shareholders.
CVS is also a strong contender among telehealth stocks because of its size. It can execute strategic investments in the virtual space with little risk and massive upside. Last year, CVS invested $25 million into Array Behavioral Care and contributed to Carbon Health’s $100 million venture investment. CVS is going all-in on telemedicine and casting a wide net, investments that will likely pay dividends down the road.
Speaking of dividends, CVS’ maturity also benefits investors as they wait for the company’s telehealth initiatives to bear fruit. The company’s many retail and health segments combine to offer investors a 6.53% total yield between distributions and buybacks. Better yet, despite the high yield, CVS only committed 36% of excess earnings to return shareholder value, indicating the company effectively manages growth prospects while keeping investors happy.
On the date of publication, Jeremy Flint held no positions (directly or indirectly) in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
