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Markets


HEALTH-TECH MELTDOWN LEAVES INVESTORS LOOKING FOR A BOTTOM

 * Jefferies, Citi recommend focusing on profit-oriented plays
 * Teladoc potential is up for debate in crowded telehealth space

   

Source: Getty Images

By

Cristin Flanagan

+Follow
March 22, 2022, 6:25 PM GMTUpdated onMarch 22, 2022, 8:15 PM GMT


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Out of favor health-care technology stocks may be nearing a bottom.

The selloff in technology firms amid geopolitical turmoil and rising interest
rates spilled over into health-care peers, sending the Global X Telemedicine &
Digital Health ETF to a record low early last week. Since then, though, the ETF
has staged a sharp turnaround, rallying 14%. 




“Weeks like last week suggest a bottom may be forming,” says Glen Santangelo,
analyst at Jefferies Group. He noted a 55% discount to the broader tech sector
-- versus 32% before the pandemic -- could mean there’s some hope for the
heath-care counterpart. 



He expects that stocks focused on turning a profit over growth -- like
revenue-cycle vendor R1 RCM Inc. or health savings accounts manager HealthEquity
Inc.  -- will be rewarded and eventually outperform. The average analyst price
target suggests a 29% upside for R1 RCM over the next 12 months and a roughly 9%
gain in HealthEquity, Bloomberg data show.


 
 


Santangelo is avoiding companies that came to the market via blank check mergers
like Babylon Holdings Ltd., an artificial intelligence-driven symptom checker,
which has fallen more than 50% since its merger last year. Investors are
shunning these companies on their limited disclosures, he said.



Like Santangelo, Citi’s Daniel Grosslight recommends investors focus on pockets
of profitability. Change Healthcare Inc., which is awaiting regulatory clearance
for an $8 billion purchase by UnitedHealth Group Inc., is Grosslight’s top pick.
Even if the deal falls through he is positive on the health-care analytics
software company’s standalone value.



Among other preferred stocks are Teladoc Health Inc. and Health Catalyst Inc.,
which could put up strong performances in the second half, according to
Grosslight. 


 
 

Teladoc, once a pandemic darling and currently retail trading guru Cathie Wood’s
second biggest bet behind Tesla Inc., has plunged more than 75% from February
2021 peak, three months after Wood talked up her bet on a pandemic surge in
virtual care at the Sohn Investor conference. 



Still, Wall Street remains relatively divided on Teladoc, with 19 recommending
buying the stock and 12 saying hold. 

And some strategists warn investors need to tread carefully amid short rebounds
in the market that might be a bear trap.

(Updates with closing prices.)




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