One Stock to Invest in and One to Steer Clear of

One Stock to Invest in and One to Steer Clear of

Sometimes it’s worth it to buy stocks of companies that are going down, and sometimes it’s not worth it. It all depends on whether there is good reason to believe that the company in question will rebound, and if so, there is arguably no better time to invest than when it is down.

Fortunately, even in a bull market like the one we’re experiencing, you can find depressed but otherwise interesting stocks to buy. However, it is best to leave other market laggards alone. Consider a title in each category: Teladoc Health (NYSE:TDOC) And Novavax (NASDAQ:NVAX).

The title to buy: Teladoc

Teladoc is a leader in telemedicine market, but its position in this industry has not allowed it to regain the good graces of investors. The company has been experiencing poor financial results for some time, with slowing revenue growth and persistent net losses. Teladoc benefited from the pandemic tailwind when its business became much more popular amid the outbreak, but things have calmed down. Last year, Teladoc’s revenue grew just 8% year over year to $2.6 billion.

One Stock to Invest in and One to Steer Clear of

TDOC Revenue Chart (YoY Annual Growth)

Teladoc has significantly improved its results. Its net loss per share of $1.34 was much better than the loss per share of $84.60 recorded in 2022. In fairness, Teladoc reported significant non-cash impairment charges in 2022 related to an acquisition. It’s still good progress. And despite the company’s difficulties, there is hope. Telemedicine wasn’t just a pandemic trend.

It’s convenient for patients and doctors, which is why several surveys have found that people plan to continue using it. Teladoc has a significant ecosystem that includes more than 90 million members and 40,000 clinicians. The company is building a network effect, and as its platform invites more members, it will also invite more doctors (including specialists), and vice versa. Additionally, Teladoc’s gross margin is high.

In 2023, the company’s adjusted gross margin was 70.8%, up from 69.1% a year ago. Marketing and advertising expenses remain high for the telemedicine specialist, but those costs are expected to decline as Teladoc grows in size and becomes better established. Although Teladoc may remain volatile in the short term, it could generate excellent returns in the long term. It’s a little too early to abandon this stock.

The title to avoid: Novavax

Novavax sought to become a leader in the COVID-19 vaccine market. However, biotechnology has been left behind by its competitors. Although it generated some sales of its coronavirus product in the United States, the pandemic began to ease soon after. While it’s true that the coronavirus vaccine market isn’t just going to disappear, Novavax is a minor player in this shrinking space. It is unclear whether this can generate significant sales.

The biotech projects total revenue of between $800 million and $1 billion in 2024. Last year, it generated total revenue of almost $1 billion. So, at best, Novavax’s revenue will remain stable compared to 2023. This is not what investors want to see. And it’s even harder to predict how the business will evolve beyond the next nine months. This might not be such a problem if Novavax had a pipeline full of promising candidates, but that’s not the case.

The company’s only other notable program that could contribute significantly to its top line is a combined coronavirus and flu vaccine. It plans to start a phase 3 study in the second half of the year. However, this vaccine can hardly get Novavax out of trouble. Even if it manages to bring this product to market — and there is no guarantee that it will — Modern And Pfizer both have similar candidates who could be approved sooner.

Additionally, an effective combination vaccine against COVID and flu could decrease sales of Novavax’s established franchise. So Novavax’s outlook appears bleak at best. Investors should stay away from this stock.

Should you invest $1,000 in Teladoc Health right now?

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Thrive Junior Bakina holds positions at Teladoc Health. The Motley Fool ranks and recommends Pfizer and Teladoc Health. The Motley Fool recommends Moderna. The Motley Fool has a disclosure policy.

1 Beaten Stock to Buy and 1 to Avoid Like the Plague was originally published by The Motley Fool

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