An absurdly cheap healthcare stock to buy now
The pandemic has vastly accelerated the shift towards telehealth, making Cigna a long-term buy

A major problem during Covid-19 has been how to treat patients without having face-to-face meetings in surgeries. Enter telehealth: using technology and the internet to create online health centres.
Although not discussed as much as other pandemic boom sectors such as film streaming, food delivery or virtual offices, telehealth is potentially huge. Annual growth forecasts for the US range from 25% to 35% a year for the next five years, implying an industry worth $200bn-$400bn. McKinsey, a consultancy, estimates that $250bn of US healthcare spend could go virtual if conditions are right – an almost 100-fold leap from the $3bn of annual sales for US telehealth before the virus.
Health-services and insurance companies such as Cigna (NYSE: CI), UnitedHealthcare, Doctor on Demand and Hims & Hers have been responding by investing in the sector, raising money and reporting strong growth that supports the impressive outlook. Cigna’s current deal to buy privately-held telehealth business MDLive, in which it already held a stake, certainly looks astute. It gets one of the biggest US telehealth businesses, which is virtually looking after 60 million people round-the-clock every day and dispensing services ranging from urgent care to psychiatry. Buying the business not only brings Cigna millions more users, but also gives it a platform on which to integrate the purchase with its existing health offerings to provide more comprehensive services. These in turn should attract even more individuals and corporate employees.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Treating patients remotely is not entirely new. Telephone consultations, for example, have been around for years. But it’s always been a small part of medical interaction. Covid-19, as in other areas, has changed this. In the year before the pandemic, telehealth facilitated one in ten medical encounters in the US, according to a survey by researchers at McKinsey. Last year the number had soared to around half. And after a peak in April it has stabilised well above pre-Covid-19 levels.
After the virus
After Covid-19 the extreme circumstances that have had so many people working from home, ordering home deliveries and endlessly streaming television are unlikely to return. But none of these activities has gone away and they are likely to be more common than before the pandemic because habits have changed.
People want more, but not all, of their time working from home, for example; similarly, online shopping isn’t going into reverse but people will still want to visit exciting shops.
It’s the same with health. Patients will want (and need) to see GPs in person again, but others will prefer quick online consultations and immediate prescriptions. In a recent McKinsey survey of consumers, 40% said they’d keep using telehealth – only 11% were using it before Covid-19.
As for clinicians, 58% now take a more favourable view of it. The pandemic’s acceleration of telehealth adoption has given a glimpse of a more efficient healthcare model that answers some of the policy and funding challenges governments worldwide are struggling with.
Telehealth is here to stay and will become more appealing as technology keeps advancing. It’s not just about online surgeries and consultations, but also the proliferation of devices and gadgets to monitor and analyse patients from afar for immediate diagnoses, alerts and surgical interventions.
Health services are set to struggle with backlogs and growing user volumes for years. The enduring need to get costs down, increase medical access and treat patients faster should also underpin the growth of telehealth well beyond Covid-19.
Double digit earnings for half the price
There are two reasons for buying Cigna. First, it is valued at just ten times next year’s earnings – half the valuation of the overall market and far cheaper than leading peers in its sector.
This is despite double-digit earnings growth: in March the company told analysts that it could keep growing earnings by an annual 10%-13% a year over the long term, and next year profit growth would reach the top of that range.
The company also boosted its dividend, which could keep outpacing inflation. The share price does not, therefore, reflect the performance outlook of the core business.
The second reason to add this stock to your portfolio is that Cigna’s effort to build its business in telehealth increases exposure to a high-growth technology sector. The group’s acquisition of MDLive accelerates progress and provides integration and cross-selling opportunities.
At least some of the potential excitement about telehealth should feed through to Cigna’s financial returns and valuation but, again, this is not yet appreciated by the stockmarket.
So far this year the shares have lagged the S&P 500, America’s benchmark index.
However, almost all the two dozen or so analysts following Cigna are positive about its future and their consensus expectation is for the shares to rise by 25% from current levels to $295.
This healthcare conglomerate broadly covers three areas: health insurance for employers and government bodies; health services for individuals; and an overseas operation.
Cigna’s first quarter results in May beat expectations with quarterly sales of $41bn. Not only are the industry dynamics working in its favour while Wall Street is taking a positive view, the management’s own tone is upbeat and confident. This is a cheap, well-run business facing a bright future.
Stephen Connolly heads a family investment office, and has worked in investment banking and asset management for nearly 30 years (sc@plainmoney.co.uk)
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Stephen Connolly is the managing director of consultancy Plain Money. He has worked in investment banking and asset management for over 30 years and writes on business and finance topics.
-
Family face £100k stamp duty bill after avoidance scheme crashes in court – the mistakes to avoid
A couple faces a substantial stamp duty bill after trying to reduce the amount they owed
-
How to get a guaranteed income in retirement
Savers want certainty in retirement, with almost two-fifths naming guaranteed income as their main priority. An annuity can achieve this – but what other income options are available to supplement it?
-
Are wealthy whisky enthusiasts leaving Britain?
Collectables Wealthy whisky enthusiasts are heading to tax-friendly countries such as Dubai, where there is more disposable income to spend on collectable luxuries like rare whisky.
-
'The rise and fall of Kodak is a lesson for the tech giants'
Opinion The long decline of Kodak – a once-dominant company – shows why no business is safe from disruption, says Matthew Lynn
-
8 of the best properties for sale with kitchen gardens
The best properties for sale with kitchen gardens – from a 17th-century timber-framed hall house in Norfolk, to an Arts & Crafts house in West Sussex designed by Charles Voysey with a garden by Gertrude Jekyll
-
Why investors can no longer trust traditional statistical indicators
Opinion The statistical indicators and data investors have relied on for decades are no longer fit for purpose. It's time to move on, says Helen Thomas
-
Investors rediscover the virtue of value investing over growth
Growth investing, betting on rapidly expanding companies, has proved successful since 2008. But now the other main investment style seems to be coming back into fashion.
-
8 of the best properties for sale with shooting estates
The best properties for sale with shooting estates – from an estate in a designated Dark Sky area in Ayrshire, Scotland, to a hunting estate in Tuscany with a wild boar, mouflon, deer and hare shoot
-
What we can learn from Britain’s "Dashing Dozen" stocks
Stocks that consistently outperform the market are clearly doing something right. What can we learn from the UK's top performers and which ones are still buys?
-
The most likely outcome of the AI boom is a big fall
Opinion Like the dotcom boom of the late 1990s, AI is not paying off – despite huge investments being made in the hope of creating AI-based wealth