This Household Name Stock is an Incredible Deal

Let’s take a break from AI-related stocks for now.

Sure, AI is a huge theme in the market – and will probably be the dominant theme for this year.

But what I don’t want is for you to only “chase” AI stocks and miss all the other opportunities out there.

So for the rest of this week, I’ll be spotlighting some non-AI related names that I think have serious potential.

And today, I want to spotlight a stock that just hit a 52-week low – all while the rest of the market has been up.

This might seem like a bad call.

But I believe there are good reasons pointing toward this household name stock being severely undervalued – meaning their stock price woes could be an incredible bargain right now.

Oh, and did I mention there’s an attractive dividend as well?

CVS Health Corporation (CVS)

No introduction needed for this stock. But let’s start with its stock performance – down about 40% from its all-time high, down about 25% for both the past 1 year and in 2023.

There are a few big reasons the stock is faltering:

  • A $5 billion settlement over the opioid crisis, payable over 10 years
  • Slightly lowered guidance in 2023
  • Losing out on a $35 billion pharmacy benefits management contract to Cigna due to a decline in CVS’ Medicare Advantage score

On the surface these are all big negative points.

But as legendary distressed assets investor Howard Marks says – it’s not what you buy, it’s what you pay. And what you would pay for CVS stock today looks like a great deal.

For one, CVS is an undisputed industry leader in the pharmacy space, with unparalleled branding power. It also has higher profit margins compared to competitors like Walgreens and Rite Aid.

And while it did indeed lower profit guidance, the company has increased top-line revenue for 12 years consecutively.

Thanks to its stock price decline, CVS is now trading at just 8x forward P/E – compared to almost 23x trailing P/E. This is a huge divergence that shows that there is huge growth potential in this stock.

Plus, it also now offers a dividend yield of about 3.5% – about double that of the average S&P 500 company.

In short, when you combine CVS’ long-term track record, brand power, dividend payout, and forward-to-trailing P/E ratio with its price – you get what looks like an incredible deal.

To your wealth,
Felix @ Ace of Investing