This is an update of a teaser solution from an older Friday File for everyone to read… I figure the Irregulars won’t be too upset, since the stock in question is up dramatically since this piece was published, but it’s still an interesting story — and a stock I own and would like to buy more of on any dips, so perhaps you’ll find it worth a read. The ad back in January that inspired the original coverage had the headline, “Amazon-like Profit Profile Could Double Investors Money Again This Year,” but now that the stock has been connected with coronavirus and had a nice run we’ve got the new “Why The Coronavirus Collapse is Sending This Stock Soaring” headline to work with.
What follows has not been updated since 1/17, and still roughly matches the clues in the newer version of the ad, but I have added an update note at the end.
The ad is from Mike Cintolo for Cabot Growth Investor ($247/yr), I started receiving it in early January and posted this teaser solution in the January 17 Friday File when he was calling this idea “The Next Amazon”… here’s how the ad starts:
“This Stock is on Track to Hand You 100% Gains
“How its Amazon-Like Profit Profile Could Double Investors’ Money Again This Year
“The financial media isn’t writing about it. Nor are the brokers recommending it.
“Yet, it’s on track to double investors’ money again, just as it has twice over the past two years.
“That’s why I’m writing: to tell you about this company that’s set to double investors’ money again this year … and become the next Amazon along the way.”
That all sounds quite generic, no? Indeed, Cabot uses very similar language to tease almost all of its growth stocks. How about some specifics?
“I’m not the only one who sees this company becoming the next Amazon-like success story. Wall Street’s top institutional investors do too, owning millions of shares worth more than $5 billion.”
That doesn’t really mean anything by itself, but knowing that the market cap is above $5 billion is a decent clue. What else?
“Over the past two years this company handed investors 50% more gains than Amazon, Apple, Facebook and Google—that’s 111% to 55%, 54%, 0% and 25%, respectively.”
He talks about “this year” as 2019, so presumably this data is a bit old (it made it into ads I saw on January 11, but the text for these often lingers and gets re-used from time to time). And Apple has risen by more than 100% since the lows of December 2018, not 54%, so that’s another indication that we’re dealing with some oldish or otherwise wonky data.
“Unlike Amazon, which sells everything under the sun, this near perfect company, the world’s leading provider of telehealth services (also called virtual care), allows millions of patients to access expert medical advice in dozens of specialties.”
And then these tidbits:
“• 40% of the Fortune 500, thousands of small businesses and a ton of public health plans have partnered with the company
• Sales up 24% in the most recent quarter, and management believes it has years of 20% to 30% organic growth (excluding acquisitions) ahead of it.
• Visit volume up 45% in the latest quarter to 928,000
• 35 million paid members in the U.S. alone and expanding overseas (up 54% from a year ago)
• 19 million more who have access but pay per visit (instead of per month) (double that of a year ago)
• Just inked a huge deal with UnitedHealth that brought on 15 million total users (paid and per visit)”
And he drops some hints about the specific holdings of top institutions and mutual funds, which means that the data in the ad could be from anytime in the past couple months (it’s still roughly up to date, with the most recent quarterly holdings updates generally being for late September)… and it also means that Cabot is definitely teasing Teladoc Health (TDOC).
Which is why I wanted to cover this one for you today, sneakily enough — because this is a stock I owned for a while and where I still see a lot of potential, and, more importantly, because Teladoc (TDOC) jumped into the headlines again this week with the announcement that it’s buying InTouch Health for $600 million ($150 million in stock, the rest in TDOC shares).
That fairly large acquisition (Teladoc is now a $7 billion company) further reinforces the main reason to buy the stock: That you believe it will be the eventual market leader in telemedicine, a very young industry, and that part of the reason it’s going to win is that they are in the best financial position among the many startups and competitors (they’ve still got more than $300 million in net cash, far more than any competing telehealth startups I’m aware of), with the largest number of current partners and customers.
Analysts were delighted, with most of them quickly boosting their target price by anywhere from $15-25… though, to be fair, the average target price is still in the high $90s, so the shares are essentially there already.
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And I’d agree, consolidation is pretty clearly a good thing for this business — after all, the actual technology is not likely to be markedly different among the telemedicine firms. They’re all limited in that they basically offer video conferencing with some records management, privacy and other add-ons, and nobody really “owns” those technologies or has an obvious technology edge as far as I can tell.
Advantages here come not with technical superiority, but with scale… and probably the biggest advantage will be the network effect, because it makes sense that this should gradually become a natural monopoly or oligopoly. Doctors and hospital groups have little to no interest in dealing with four or five competing telemedicine platforms, they want one technology that works, or maybe a second one to keep the first company honest… so the technology that gets adopted by the largest number of providers and insurers and accepted by the largest number of patients is likely to be the one that “wins.” Having more patients embrace it will bring on the hospitals and providers; having more hospitals and doctors and insurers use it will bring in more patients, etc — it’s hard to beat the virtuous cycle of the network effect, particularly in an area like telemedicine, where everybody involved in the supply chain wants it to work and plans to invest in this trend (insurers can save money with more virtual visits, doctors c