The first half of 2019 is in the record books, and technology continues to lead the way forward for the economy. Organizations around the globe are adopting new digital-based operations, creating a tidal wave of change that is seeding big growth for many smaller companies.
Yet many investors are fretting over the news of impending global economic slowdown, with whispers of the R-word — recession — building to a chorus of concern.
In spite of the news, fundamental changes in investing segments like TV, healthcare, and computing are creating a long-term tailwind for The Trade Desk (NASDAQ:TTD), Teladoc Health (NYSE:TDOC), and Xilinx (NASDAQ:XLNX). Here's why these three technologists look like a good buy for the long haul no matter what happens next.
1. The Trade Desk: monetizing entertainment headed to the internet
Television is changing, and with it, the way advertisers reach their audiences. Rather than a traditional broadcast, the world is increasingly consuming TV content via the internet — through a TV hooked up to the internet, or via a myriad of other devices like Apple TV, Roku, a video game console, etc. Nearly two-thirds of Americans are watching connected TV, and the number of hours they spend doing so is on the rise.
The reasons for consumers' move from traditional TV are varied and even include a desire to get away from advertising. But regardless of the reason, it's actually good news for advertisers. Internet-based TV means more detailed information on the potential audience — who's watching, when, and what they're interested in.
That's where digital ad-buying company The Trade Desk comes in. The company helps businesses target and optimize advertising delivered through connected TVs, digital audio, and apps. Connected TV and audio have been massive growth drivers as internet-based entertainment has really taken off. Through the first half of 2019, revenues are up 42% year over year, and adjusted earnings are up 52%.
The Trade Desk's stock isn't cheap, though, going for 78 times the next year's expected earnings and 21 times trailing 12-month revenue. So why buy now? A myriad of new streaming TV services are going to come online this fall, including Disney‘s Disney+, to be bundled with Hulu and ESPN+, and Apple's Apple TV+. Amazon also changed its policy and will allow The Trade Desk to start offering targeted ads on its TV services. In short, there's a lot of potential ahead for this company, and it could be one of the best ways to ride the boom in streaming TV services that is set to take place.
2. Teladoc Health: an answer to rising healthcare costs
The cost of health goods and services has been outpacing average inflation for some time, and U.S. government projections expect that trend to continue for the next decade. One answer to the problem is telemedicine — patient visits with a healthcare professional via phone or internet. The U.S. telemedicine industry is expected to grow an average of 27% a year in the next five years and reach $13 billion a year by 2023, according to Research and Markets.
Enter Teladoc, the global leader in virtual care. Through acquisition and starting new in-house services, Teladoc now dominates the U.S. telemedicine industry and has a growing presence overseas as well. The company's goal is to make accessing care more convenient and affordable, helping health providers, insurers, and businesses get patients connected to a health professional in a way that works best for them. Through the first half of 2019, total patient visits grew 73%, subscription access fees (membership fees paid to access Teladoc's healthcare network) increased 43%, and visits fees (paid when a patient visits a professional via phone or internet conference) were up 27%.
Teladoc runs at a loss, as it is trying to maximize growth now rather than focus on the bottom line. And that is perhaps what has caused this stock some trouble. Over the last trailing 12 months, shares are down 18% in spite of solid top-line expansion and a growing network of patients. After the recent tumble, brought about in part by a widening loss in Q2 2019 and recent stock market volatility, Teladoc looks like a good buy for the long term. With more people opting for the convenience of remote care rather than heading for the local doctor's office, Teladoc should be a much bigger player in the healthcare industry in 10 years' time than it is now.
3. Xilinx: old chips for a new era
Xilinx is the oldest company of the three mentioned by a long shot (it was established back in 1984 in Silicon Valley), but its programmable semiconductors have been getting renewed interest in the last few years. Xilinx's customizable chips and supporting software solutions are particularly well suited to cloud computing, AI-powered computing, and 5G mobile networks. Spending on the first two initiatives is expected to continue growing in the double digits for the foreseeable future as those initiatives create value for businesses around the globe, and 5G networks are only just starting to be deployed in select markets.
Nevertheless, the global economic slowdown, hastened by the trade war between the U.S. and China, has hit Xilinx's growth trajectory. After revenues and adjusted earnings increased 24% and 32%, respectively, during the 2019 fiscal year, first-quarter 2020 revenues and adjusted earnings slowed to 24% and 29%. Management's outlook for the next quarter is for a further cooling off, with sales expected to be up “only” 7% to 14% year over year. The stock has subsequently fallen in double digits from its all-time highs back in the spring.
Clearly, Xilinx is not immune to trade disputes and other economic disruption, but that it can still muster those kinds of numbers in the face of adversity is impressive. With computing processes undergoing rapid change, there's no reason to believe this chipmaker's growth story will end anytime soon. Rather than being bad news, the recent slowdown looks like a buying opportunity, a mere speed bump that will soon be forgotten as Xilinx continues to power change with its brand of programmable semiconductor systems.