Christmas is just around the corner and, overall, 2021 has been a fruitful year for most investors.
That’s because the major US benchmark indices, such as the S&P 500 Index and Nasdaq-100 Index, have both posted gains of over 20% year-to-date.
While that has been a boon for passive investors that have been buying into exchange-traded funds (ETFs), there has been a less obvious side effect.
That has been the underperformance of “growth-y” stocks that massively outperformed during 2020. These can best be summed up as the types of companies found in Cathie Wood’s ARK Innovation ETF (NYSE: ARKK).
Unsurprisingly, after such huge gains in 2020, these types of companies saw another sustained sell-off in early December. This was mainly down to the Federal Reserve’s tapering of bond buying and the likelihood of interest rate hikes next year.
As a result, many of these growth names have now declined between 40-70% from their all-time highs.
However, if you’re a long-term investor, then that’s part and parcel of investing in growth companies, many of which are found in the technology sector.
Given stocks are the only thing people don’t want to buy “on sale”, maybe it’s worth being contrarian by picking up some beaten down stocks.
With that, here are two tech stocks – both trading at a 50% discount to their all-time highs – that investors can add to their last-minute Christmas shopping list.
1. Teladoc
Coincidentally, Teladoc Health Inc (NYSE: TDOC) is one of the biggest holdings in a number of Cathie Woods’ various ETFs.
The telemedicine provider rode a high in 2020 as shares more than doubled. In the first quarter of this year, Teladoc stock climbed to hit an all-time high of over US$300.
It now sits at around US$96, having shed over two-thirds of its value since then. But has anything fundamentally changed with the business? Not really.
In fact, while the market has viewed it as a “pandemic stock”, it has been anything but. That’s because it was consistently growing its user base and revenue, even before Covid-19 hit.
Revenue was up 81% year-on-year to US$522 million in its latest third-quarter earnings, which was on top of the 108% year-on-year growth it posted in the same period of 2020.
Meanwhile, total visits for the third quarter was over 3.9 million, up 37% year-on-year versus the same period in 2020.
One of the biggest things driving this has been Teladoc’s sustained efforts to be more than just a run-of-the-mill “doctor on Zoom” service.
Its efforts are paying off after Teladoc last year acquired mental health and chronic disease digital healthcare monitoring firm Livongo for US$18.5 billion.
As investors can see below, Teladoc’s “utilization rate” continues to trend upwards (as does visits), meaning more and more employees covered by its plans continue to use its services.
That’s perhaps the best sign that patients find Teladoc’s offerings compelling.
Source: Teladoc Q3 2021 earnings presentation
Aiming to be a “whole care” provider, Teladoc has been moving towards focusing on primary care (building a relationship with a primary care physician) and is actually determined to complement offline care rather than completely replacing it.
While Teladoc’s net loss widened to US$84.3 million in the third quarter, from US$35.9 million in the third quarter of 2020, this was more to do with stock-based compensation expense as relates to its acquisition of Livongo, via stock awards.
For anyone who believes in the future of telemedicine and virtual healthcare, Teladoc provides a compelling entry point at today’s prices.
2. UiPath
UiPath Inc (NYSE: PATH) is a robotic process automation (RPA) software provider. It went public in April of this year and priced its stock at US$56 apiece.
Today it’s trading below its IPO price, at just over US$43, while it’s also down more than 50% from its all-time high of US$90 in May of this year.
UiPath is one of the leaders in its space with the automation market in enterprise set to be worth US$30 billion by 2024.
For context, UiPath posted revenue of US$221 million in its latest quarter – giving it a revenue run rate of nearly US$900 million.
While its revenue was up 50% year-on-year in its latest quarter, UiPath actually counts is annualised renewal run rate (ARR) as a core metric.
That was up 58% year-on-year to US$818 million in its latest quarter and provides investors with a highly-recurring, subscription-based business model that is billed annually.
Meanwhile, being a software business its gross margins are also enviously high, with its GAAP gross margin hitting 80% in its latest quarter.
With a global client base of nearly 10,000 customers, with 1,363 of those generating over US$100,000 in ARR, UiPath looks set to keep winning over the long term.
Prepare for volatility
While growth stocks have taken a hit, it’s worth remembering why we invest in cutting-edge technology in the first place – its ability to disrupt and innovate.
An investment in the companies leading this change is not for the faint-of-heart though. Many growth stocks can experience massive sell-offs, such as Teladoc and UiPath, but longer term their business fundamentals will determine their share price performance.
On this front, nothing much has changed this year for Teladoc and UiPath. Given they’re both trading at huge discounts to their highs, it might be worth doing some shopping before Santa visits this weekend.
Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips owns shares of Teladoc Inc.
