New Trade for November 23rd, 2020

Wall Street is focusing on hope around more encouraging vaccine data this morning, for the third Monday in a row.  AstraZeneca reported this morning that late-stage trials of its Covid vaccine showed as much as 90% efficacy.  That’s great news, but it doesn’t negate the fact that Covid case numbers are surging to record breaking highs across the country.  

Today we’ll highlight an investment that holds a unique place in the healthcare sector — one that allows it to benefit from pandemic-induced demand as well as whatever comes next. 

CVS Health Corp (CVS) stock is off more than 10% for the year-to-date, vs. a gain of more than 9% for the S&P 500.  As disappointing as that might be for long-term shareholders, it also creates a decent entry point for new investors.  The benefits of its 2018 acquisition of Aetna and the expected resumption of share buybacks only reinforces the case that the stock is a bargain.  

“We think valuation risk/reward remains to the upside, particularly given strong operating cash flow generation and as CVS gets closer to being able to resume share repurchases, likely in 2022,” says UBS analysts, who rate the stock at Buy.

Argus Research adds that CVS is on schedule with its efforts to pay down debt related to the Aetna acquisition.  “We expect EPS growth to improve in 2022, when the company has restored debt ratios to pre-Aetna levels and can once again enhance earnings with share repurchases,” Argus’s Christopher Graja writes.  

The bottom line is that this large-cap value stock is expected to generate average annual earnings growth of almost 5% and trades at a low 10 times expected earnings.