Healthcare innovation equities are languishing, but it could time for one of the most well-known names in the group to turn around, and that could be constructive for select exchange traded funds, including the ARK Genomic Revolution Multi-Sector Fund (CBOE: ARKG).
In a note to clients on Friday, Goldman Sachs analyst Cindy Motz initiated coverage of teleheath giant Teladoc (NYSE:TDOC) with a “buy” rating and price target of $121. That implies upside of more than 65% from the February 11 close.
“As the global leader in the virtual healthcare space, we believe Teladoc is uniquely positioned to advance the overall integration of digital into healthcare, paving the way for the healthcare technology sector to become more disruptive,” says Motz in the report.
That’s relevant to investors considering ARKG because Teledoc is the ETF’s second-largest holding at a weight of 7.53%, as of February 11, according to ARK Investment Management data.
As is the case with healthcare innovation, Teladoc surged during the worst days of the coronavirus pandemic only to tumble in the back half of 2021 — a scenario that’s carrying over into 2022 as growth stocks fall out of favor.
Specific to Teladoc, some investors are worried that as the pandemic eases, the case for telehealth will wane. However, that misses the mark because Teladoc was rapidly growing before COVID-19 was a part of our daily lives. Importantly, there’s a strong long-term outlook for Teladoc because telehealth is seen as bringing more cost efficiencies to healthcare while improving patient outcomes.
“As the company rolls out its Primary 360 product, leverages its potential in the mental health arena, and eventually expands internationally, we believe TDOC represents an excellent way to invest in the future digital integration and disruption in the overall healthcare sector,” adds Goldman’s Motz.
Using ARKG to access Teladoc could be an effective idea for prudent growth investors, as it’s one of 53 holdings in the genomics fund. Additionally, ARKG is actively managed, so ARK could potentially add shares of the dominant telehealth name as it sees fit.
“With TDOC now trading near 52 week lows, we think the market’s reaction is overdone,” Motz says. “We see a significant amount of upside here.”
Teladoc is also a member of the ARK Innovation ETF (NYSEArca: ARKK) portfolio.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.