The disconnect between stocks and the economy continues! Share prices are still trading close to all-time record highs, at least on the surface. Tech companies and Covid beneficiaries are surging. Meanwhile travel, leisure, energy, and many more businesses continue to struggle. In my personal portfolio, Apple, Fastenal, and P&G lead the way; each company trading close to an all-time high. With this strange world we live in, I’m not taking any chances! I’m still reinvesting dividends but I’m being careful at which companies I’m buying. I recently began averaging in to two new companies. I’ll cover CVS in this post and Public Storage in the next.
CVS Health Corporation is a fully integrated health services provider. The company combines one of the country’s largest drug businesses with the largest pharmacy chain. Overall, the company fills over 1 billion prescriptions per year and has 9800 locations. Furthermore, the company provides onsite medical care on various locations through its Minute Clinic. If this were not enough, CVS also recently completed a merger with health insurer Aetna. So essentially, you can fill a prescription, obtain insurance, and even be treated onsite through CVS. Most importantly CVS is an essential business and perhaps the MOST important one in a pandemic.
The company is currently trading at a reasonable valuation at around $65/share and a P/E of 9. This comes after a decent first quarter where the company beat expectations. Earnings came in at $1.91/share, showing 18% year over year growth. Revenue grew 8.3% YOY, coming in at $66.8 billion. CVS carries a 3% dividend yield and only pays out 30% of its earnings to shareholders. The company has a manageable amount of debt ($71 billion) with a debt-to-equity ratio of 1.42. Cash flows have remained stable during the pandemic and grown dramatically over the past decade. A major risk to the company, universal healthcare, has long passed since Bernie Sanders exited the presidential race.
Analysts are predicting average annual returns of between 10 and 15 percent. Even though universal healthcare is no longer a near-term threat, further healthcare legislation still presents a risk. Also, with Amazon entering the pharma market, CVS has a very dangerous competitor to deal with. Legislative, pandemic, and competitive risk factors have allowed this company to go on sale. Because I’m trying to minimize risk, I opened up a small position and continue to buy shares on a regular basis. For instance, with $0 commissions I was able to buy just 2 shares on Friday. Despite the risks, CVS is still an essential business that provides life saving products and services. With a decent well-covered dividend, CVS is another welcome position to my portfolio!
I am long on PG, FAST, CVS, PSA and AAPL. I am not a licensed investment adviser or tax professional. I am not liable for any losses incurred by any parties. This blog should be viewed for entertainment and/or educational purposes only. Any transactions published are not recommendations to buy or sell any securities. Please consult with an investment professional before making investment decisions.