Growth stocks, particularly those equipped to perform well amid the pandemic, were all the rage last year, and many of them doubled or even tripled in 2020. But 2021 has thus far been a very different story for some of these companies. Case in point: Shares of telehealth giant Teladoc Health (NYSE:TDOC) are down by 26.6% year to date, while Square (NYSE:SQ) stock was recently up by 9%; by comparison, the S&P 500 has gained 15% on the year.
Both of these companies shattered the broader market’s performance last year, and even given their less impressive runs in 2021, there are good reasons to think the future is bright for them. Here is why both of these stocks are worth stashing in your portfolio and holding on to for many years to come.
In an increasingly digital world, it isn’t surprising that medicine is also progressively relying on innovative technologies. Telehealth is one such example, and Teladoc is a leader in this field. Virtual consultations with physicians help doctors save time and money, and allow them to conduct more consultations. And, of course, they are extremely convenient for the patient.
In other words, everyone wins, which is why the telehealth industry is poised to continue growing at a good clip. Teladoc will benefit from this long-term trend as the adoption of telehealth services grows among insurance companies, businesses, and individuals. The company’s ecosystem of medical professionals and the wide array of services it offers are major reasons it can attract new customers and retain the ones it already owns.
One of Teladoc’s key growth drivers is likely to be specialty care. In October 2020, the company acquired Livongo Health — a provider of health management services for those with chronic conditions — in a cash and stock transaction valued at $18.5 billion.
Livongo Health’s popularity was already rising, particularly in its main market, diabetes patients. The addition helped Teladoc increase its reach within this population. Teladoc’s revenue increased by 151% to $453.7 million in the first quarter, ending March 31. Meanwhile, the company’s total visits grew by 56% to 3.2 million.
While the pandemic helped boost Teladoc’s profile last year, the company looks well positioned to ride this positive wave for many years to come, despite recent struggles in the stock market. Adding shares of this healthcare stock to your portfolio today would be a great move.
The financial industry is also making use of digital trends. We don’t live in a cashless society yet, but the rise of digital payments continues, and Square is one of the best players to profit from this opportunity.
The company is known for the suite of services it offers businesses: point-of-sale systems (including the ability to turn electronic devices into such a system) and accompanying software, payroll and inventory services; small business loans; business analytic tools; and more.
CEO Jack Dorsey once described Square’s ecosystem as being the company’s “core differentiator,” and there’s certainly a lot of truth to that. The stickiness of this suite of services means that once customers find their way to Square, they are more than likely to stay while adding to the services they purchase from the tech company. The result is a growing ecosystem of sellers and increasing recurring revenue.
It also grants Square the ability to monetize these sellers in other ways. The company started offering business owners e-commerce storefronts, for instance. Its ecosystem is undoubtedly a great asset, but another major growth driver for the company will be the Cash App, its peer-to-peer payment app. Cash App has evolved into much more than an app that helps facilitate secure transactions between friends.
It now offers direct deposits, the ability to purchase stocks and Bitcoin easily (with no fees), and customized debit cards. Square’s long-term plan is to provide as many banking services as possible to underserved communities, and the opportunity here is vast. The company estimates that it has merely begun to scratch the surface of Cash App’s $60 billion addressable market in the U.S. alone, not to mention the rest of the world
Considering its seller ecosystem and Cash App, Square looks set to outperform the market in the long run, making it an excellent stock to add to your portfolio.
Square and Teladoc have at least three things in common. First, their businesses are centered around innovative technologies. Second, they have managed to build strong ecosystems that grant them a competitive advantage. And third, there remains a long runway for growth in their respective industries. Thanks to these three factors, both stocks look like excellent long-term bets.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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