Buy Google for its telehealth potential, this fund manager says

Tech stocks have fallen in September as the market pulls back on its love for names like Alphabet, Amazon, and Apple. But for investors with longer-term horizons, Google is a great play, according to John O’Connell, CEO of Davis Rea, who likes the company’s move into the healthcare space.

“I love Alphabet. We own it and have owned it forever. All we’ve done is prune it from a risk-control perspective,” says O’Connell, speaking to BNN Bloomberg on Wednesday.

Alphabet’s share price has dropped 17 per cent since early September, along with significant pullbacks to tech more broadly as well as the rest of the so-called FAANG stocks. After gaining 28 per cent in 2019, Google started off 2020 very well before the market ran into COVID-19 and took a plunge. Even so, Google is currently up six per cent year-to-date.

Regulatory headwinds have been a constant topic for Alphabet, which has seen its share of legal battles in recent years over antitrust concerns both in the US and the European Union. The latest has EU regulators probing into competition issues surrounding Google’s intended acquisition of health wearables company Fitbit, both in terms of a potential extension of Google’s dominance in online advertising and in terms of Google’s access to Fitbit’s cache of health information related to its users.

But O’Connell thinks the outcome of competition investigations surrounding Google won’t slow the company down.

“I think Alphabet has a long way to run in terms of innovation,” O’Connell said. “There are going to be some charges unveiled about them in terms of [Google’s search engine] and it has become very politicized in the US where these companies are attacked —Facebook, Google, Amazon, Apple to some extent— from politicians around the world.

The regulations are going to be somewhat punitive but Alphabet is more than capable of dealing with any fines or penalties.”

Alphabet’s move into healthcare seems to be picking up steam as of late. The company’s cloud division made news recently with a $100-million investment in US telehealth provider Amwell, which just IPO’d on the NYSE, while Alphabet’s Verily Life Sciences research branch has started into the health-related insurance field through a partnership with Swiss company Swiss Re.

The telehealth sector has been growing by leaps and bounds during the COVID-19 pandemic, and the results have shown in the increase in share price for names like Teladoc Health, whose share price has more
than doubled in 2020.

O’Connell says moving into healthcare will be a moneymaker for Alphabet in the long
run.

“Alphabet invests enormous sums of money in research and development, it has an exceptionally strong balance sheet, it has a CEO who I think has a very good vision towards the future and they’re investing vast sums of money in healthcare, which I think is a huge area,” O’Connell said.

“Google, Amazon, Microsoft, Apple are investing huge sums of money into healthcare, trying to make it more affordable. So, those are the companies —aside from, say, United Health or telehealth companies —that make for very attractive long-term investments,” O’Connell said.