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Recent research found that only about 15 per cent of Americans used telehealth in 2020, of which most visits were for mental diseases and disorders.

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As the pandemic eases and more people resume their normal work and leisure routines, demand for telehealth services is slowing.

Some stocks that made big gains during the strict lockdowns of the past year have sold off while others are treading water. Observers say it doesn’t mean telehealth is going away, it’s just that the sector is taking a breather after a pandemic-led surge.

“The recovery is taking a little bit of the shine off the telehealth stocks,” says Daniel Sacke, senior vice-president and portfolio manager with The Sacke Wealth Advisory Group at BMO Nesbitt Burns Inc. in Toronto. “As things recover, we’re okay to go into a hospital and we want to visit our doctor’s office.”

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A report from Brentwood, Tenn.-based analytics firm Trilliant Health echoes that view. It looked at post-pandemic health care trends and concluded that demand for telehealth will decrease or remain flat across the U.S. this year. Trilliant Health’s analysis was based on 309-million health care claims made through health care insurers and Medicare.

Trilliant Health found that even though the industry grew exponentially in 2020 – including a raft of initial public offerings – telehealth use began to taper early this year as the economy began to reopen. The research found that only about 15 per cent of Americans used telehealth in 2020, of which most visits were for mental diseases and disorders.

FAIR Health Inc., an independent New York-based nonprofit organization that analyzes health insurance data, reports a similar trend, noting that telehealth use fell nationally in the U.S. for the third straight month in April. It also found that mental health issues account for a majority of visits.

The research suggests that while telehealth has many applications, patients want in-person medical care if they can get it.

Mr. Sacke manages two funds for his high-net-worth clients with a combined $800-million in assets. While he liked Teladoc Inc., TDOC-N, one of the largest telehealth platform providers, last year, he sees a more limited upside for its business this year.

“I think it’s a great company and it’ll keep innovating, but am I rushing out to buy the stock now? I can’t say that I am,” Mr. Sacke says.

Teladoc’s shares tumbled to their current US$152 each range from a high of US$294 on Feb. 8, a decline of 48 per cent. Part of the selloff was the general rotation out of growth stocks even as the company turned in strong quarterly sales and profits.

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Another telehealth bellwether, GlobalX Telemedicine and Global Health ETF EDOC-Q, is down about 5 per cent year-to-date. The exchange-traded fund (ETF) has US$742-million in assets under management and was launched last July.

Despite these recent declines, Mr. Sacke says telehealth has a bright future.

“The industry is not going away, but for now, people want to do more normal things again. That includes a one-on-one consultation with a doctor,” he says.

In the meantime, Mr. Sacke has added other health care companies that benefited from the pandemic, but are well-rounded, to his equity fund: Abbott Laboratories Inc. ABT-N and Thermo Fisher Scientific Inc. TMO-N. The stocks of both companies dipped recently after strong recent earnings.

For Abbott Labs, the reason for the drop was a projected decline in demand for its COVID-19 testing tools. The news sent the stock down from a high of US$128 to a low of US$105, before rebounding to its current level of US$118.

Mr. Sacke notes that diagnostic tools are only one of four divisions for Abbott, and COVID-19 testing is just one part of that division. So, the selloff ignores its other businesses, which are pharmaceutical, nutrition, and medical devices.

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“We think Abbott is a wonderful position to be initiating,” he says.

Mr. Sacke notes that he has added Thermo Fisher, the diversified instrument and testing company, to his funds for the same reason.

“We think it is a good industrial stock. Thermo Fisher is not just about testing, but instrumentation, specialty diagnostics and laboratory products,” he says.

Meanwhile, Nick Kalivas, head of factor and core equity product strategist, ETFs and indexed strategies, at Invesco Ltd. in Chicago, says he sees telehealth as a way to invest in technology.

“When investors think about technology, they migrate to traditional software and communication services as a broad theme passing over health care, which is seen as an afterthought,” he says. “But health care is another way to play innovation. This use of technology makes our lives better and is overlaid with some very powerful demographic trends, especially as the developed world ages.”

Invesco S&P SmallCap Health Care ETF PSCH-Q has about 10 per cent of its holdings in health care technology, where many telehealth companies are found. These companies are developing software to analyze data and help improve efficiencies for doctors, clinics, and hospitals. They also connect patients with pharmacies and other medical services.

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He agrees with Mr. Sacke that telehealth has a lot of potential.

“The pandemic created this work at home, play at home environment. The technology and potential is going to be there on a longer term basis,” he says.

“If there’s a bright side to COVID-19, it’s really a spotlight on the sector’s ability to use technology to make things better,” Mr. Kalivas says. “It showed that society can use technology to overcome a lot of obstacles, speed up processes and solve problems – and I think that that bodes well for the future.”

Adam Mayers is a contributing editor to the Internet Wealth Builder investment newsletter.

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