Healthcare is a great place to invest right now. Whether you think 2021 is the last year we are very concerned about COVID-19, or you believe that Modern CEO Stephane Bancel is right and that this coronavirus will last forever (although not as a pandemic-level threat), there is little doubt that there will be high demand for quality healthcare.
I think two health stocks could go up this year for very different reasons. American Well (NYSE: AMWL), or Amwell, could benefit from continued high demand for telecare services, while AmerisourceBergen (NYSE: ABC) is positioned to thrive when industry conditions begin to return to normal and pharmaceutical sales soar.
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1. The case for Amwell
Telehealth company Amwell didn’t start trading publicly until September 17. The stock has since risen by about 30% (while the S&P 500 is up 15%), and more profit could be made. With a market cap of $ 7 billion, Amwell is only a fraction of the size of its rival Teladoc Health, which is now worth more than $ 40 billion following the merger with Livongo Health. And the numbers generated by Amwell have been phenomenal.
When Amwell released its third-quarter results on Nov. 12, he reported 1.4 million tele-health visits for that period – a 450% year-on-year increase. Revenues of $ 62.6 million were up 80%. While the company suffered a net loss of $ 64.6 million, poor results haven’t really hurt Teladoc – it has suffered losses in each of the past five quarters.
And Amwell could accelerate its growth by making it easier for hospitals to provide telecare services. On February 18, it announced the launch of Hospital TV 100, a device that allows hospitals to convert televisions they already own into telehealth endpoints. These can increase social distance and safety for health professionals and make it easier for them to keep an eye on patients.
Although healthcare professionals are administering COVID-19 vaccines at a fairly rapid pace, it may be some time before the pandemic is over. Meanwhile, the demand for telecare services remains high.
With its smaller size and a focus on telehealth (Teladoc, on the other hand, is expanding into other areas, such as chronic disease management), Amwell is more of a pure player in this field than its rival. That could give it a better chance of rising if demand for telecare increases this year.
2. The case for AmerisourceBergen
Some investors may want to hedge their bets optimistically that the spread of COVID-19 will continue to plummet, to the point where hospital operations can return to normal. One way to do that is to invest in the medical distribution company AmerisourceBergen.
In the past year, patients were not too keen to visit doctors or hospitals for fear of the corona virus. That was a headwind for pharmaceutical sales.
AmerisourceBergen’s third quarter of fiscal 2020, which ended June 30, sales grew by only 0.3% year over year, in part due to COVID-19; sales were boosted by consumers stocking up on medicines during the early stages of the pandemic. In the fiscal fourth quarter, revenue growth rebounded to 7.9%. And when it released its first quarterly results for the fiscal year 2021 on February 4 (for the last three months of calendar 2020), revenues reached $ 52.5 billion and grew even faster – 9.7%. AmerisourceBergen has also revised its fiscal 2021 outlook. Previously, it had predicted growth in the mid-single digit percentages. Now it expects growth in the high single digits.
One reason to be optimistic about the growth outlook: the company is expanding. Earlier this year, AmerisourceBergen acquired the majority of Alliance Healthcare from Walgreens Boots Alliance for $ 6.5 billion. The move will help increase the company’s footprint, especially in Europe, where Alliance is one of the largest pharmaceutical wholesalers. While Walgreens and AmerisourceBergen work under a strategic partnership in the US and the pharmacy retailer owns nearly 30% of AmerisourceBergen, the two companies focus on different areas: wholesale versus retail.
Over the past 12 months, AmerisourceBergen’s shares are up a modest 8%, while the S&P 500 is up 16%. However, once patient visits rise to pre-pandemic levels, there should be more demand for pharmaceuticals. That alone should boost stocks. In addition, AmerisourceBergen’s acquisition of Alliance is another reason to be optimistic about the outlook for 2021.