We recently compiled a list of the 10 most undervalued large-cap stocks to invest in. In this article, we’ll take a look at how CVS Health Corp. (NYSE:CVS) stands compared to other undervalued large-cap stocks.
Are cyclical stocks the new investment strategy?
Significant gains have already been realized after the Fed’s aggressive interest rate decisions in September, and historical trends suggest that markets typically remain flat or rise slightly for 30 to 60 days after the first rate cut. is expected. Positive factors contributing to the current rally include strong internal market dynamics, with much of the S&P 500 index trading above its 200-day moving average, and optimism for economic stimulus from China. can be mentioned.
At times like these, investors are cautioned not to assume certainty in market outcomes. Investors are advised to consider protection strategies such as considering shorter-dated bonds as a hedge against the possibility of rapid rate cuts by the Fed. Overall, focusing on sectors with strong fundamentals while remaining adaptable can help investors weather economic uncertainty. Liz Young-Thomas, head of investment strategy at SoFi, agrees. We featured her opinion in our article on 8 Most Active U.S. Stocks to Buy Now. Here is an excerpt.
“When discussing concerns about valuations, Ms. Young agreed that while the U.S. market multiple is relatively high, around 21-22x, it is not unprecedented compared to historical norms. Although valuations are above both the five-year and 10-year averages, they are not at overbought levels, Young said, pointing out that the market is moving toward trading based on fundamentals rather than multiple extensions. He noted that while earnings stability is critical, there are signs of strength in sectors other than technology, particularly industrials, which are likely to see rapid earnings growth. Regarding, Ms. Young emphasized the importance of thorough research and analysis rather than relying on profits…considering only top-down market movements… She urged investors to remain vigilant and adopt protective strategies. He suggested exploring opportunities across the Treasury curve, particularly in short-term bonds, as a hedge against the possibility of a sooner-than-expected rate cut by the Fed.
Citi U.S. Equity Strategist Scott Kronert appeared on CNBC’s “Squawk on the Street” on October 2 to discuss year-end major averages and stock valuations, as well as potential market volatility. He talked about how investors should lean toward growth and the business cycle to cope.
story continues
Scott Kronert has set a target value for the S&P 500 at 5,600. As markets entered October, significant global events unfolded, including economic stimulus from China and continued geopolitical tensions marked by strikes in the Middle East. Kronert said that while these developments are extremely important, translating them into viable investment strategies has proven difficult, especially in light of the ongoing conflicts involving Russia, Ukraine and Israel. admitted that he was doing it.
Referring to the geopolitical situation, he noted that the situation in the Middle East remains unpredictable and continues to be a wild card. This uncertainty prompted a strategic shift to overweight energy stocks in the fourth quarter, suggesting that rising tensions could benefit the sector. However, he characterized the move as somewhat contrarian given the current market environment.
When discussing monetary policy, Kronert noted that the Fed remains in accommodative mode and has not yet reached the point where it can be considered fully accommodative. The focus is on balancing growth while being defensive towards the end of the year. This approach includes an overweight position in the financial sector while avoiding more defensive sectors that have historically been viewed as overvalued. He noted that while healthcare is somewhat of an exception to this trend, overall there is no urgency to invest heavily in traditionally defensive sectors.
The conversation also touched on the Fed’s role in achieving a soft landing for the economy. Kronert believes that if the Fed continues to cut interest rates, as market expectations suggest a total cut of up to 200 basis points is possible, it could create a favorable environment for stocks. But he acknowledged that markets have misjudged the Fed’s actions in the past.
This discussion raised concerns about the potential risks facing both monetary policy and economic performance. Kronert emphasized that the bigger risk is that the Fed needs to stay ahead of economic trends, rather than behind them. Deteriorating working conditions could lead to further rate cuts. However, he cautioned against viewing this as simply a negative for stocks. Rather, he sees potential risks related to inflation due to rising commodity prices due to geopolitical tensions.
Looking ahead to 2025, he is concerned about how the ongoing debate over deficit financing could affect market trends, particularly bond markets, and potential pressure from bond vigilantes. expressed. He noted that while the immediate risks may seem manageable, there could be long-term consequences from political developments surrounding the US election.
He further said that as long as the overall trajectory remains constructive, the market could potentially move up to 50 basis points in November, while expressing satisfaction with either 25 basis points or 50 basis points. He suggested that expectations for interest rate cuts could provide support to the market.
Analysts are increasingly optimistic about large-cap stocks, viewing them as a strong investment option amid the current market volatility. Scott Kronert’s assessment is consistent with this perspective, suggesting that leaning toward growth and pro-cyclicality could be beneficial for investors as they weather the year-end volatility. Due to their stability and potential for stable dividends, large-cap stocks are well-positioned to weather economic uncertainty and geopolitical tensions, making them a reliable option for companies looking to maintain a balanced portfolio. It has become.
methodology
We used the Finviz stock screener to create a list of 25 stocks with more than $20 billion in trading value. This is our definition of a large-cap stock. We then selected stocks with a forward P/E of less than 15 to create a list of the 10 stocks that are most popular among elite hedge funds and that analysts are bullish on. Stocks are ranked by the number of hedge funds that own the stock as of Q2 2024.
Why are we interested in stocks that hedge funds invest in? The reason is simple. Our research shows that by mimicking the top stock picks of the best hedge funds, you can outperform the market. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, outperforming the benchmark by 150 percentage points (Learn more ).
Top 15 best-selling anti-cancer drugs
Rows of shelves in a retail pharmacy. Various medicines and commercially available products are on display.
CVS Health Corporation (NYSE:CVS)
Forward price/earnings ratio: 8.47
Number of hedge fund holders: 60 people
CVS Health Corp. (NYSE:CVS) is the world’s second-largest health care company, operates a network of retail pharmacies, provides pharmacy benefit management services, and provides health care services through MinuteClinic walk-in clinics. I’m doing it. We also own and operate Aetna, a health insurance company committed to providing accessible and affordable health care solutions to individuals and communities across the United States.
The company is doing well because it is becoming a more integrated healthcare provider. The company is expanding MinuteClinics to provide more convenient care, improving its telehealth services and attracting new customers. We also acquired Aetna, which allows us to offer more complete care solutions. This is consistent with the healthcare trend toward value-based care, focused on improving patient outcomes and long-term growth.
The company serves approximately 187 million people. More people are using Aetna health plans through CVS Pharmacy, and Caremark currently covers 13.8 million Aetna members. The company lowered its full-year profit forecast, citing challenges at its insurance division Aetna, and this is the second time it has lowered its 2024 forecast. However, the company’s sales also increased by 2.6% in the second quarter of 2024. We have successfully launched CVS CostVantage.
Management expects Medicare Advantage segment margins to improve by approximately 110 basis points in 2025. This is within the company’s target of 100 to 200 basis points. The company also said it expected a 5% decline in Medicare Advantage membership, resulting in cost savings of $500 million.
CVS Health Corp. (NYSE:CVS) is doing well because of its new ideas and how it combines different health care services. The company is growing faster by using transparent payment models, using more biosimilars, and improving patient care through connected healthcare assets.
Coho Relative Value Equity Strategy says this about CVS Health Corporation (NYSE:CVS) in its Q2 2024 investor letter:
“While we believe these companies’ performance is in line with or exceeds our expectations and that the downgrade is unwarranted, both CVS Health Corporation (NYSE:CVS) and Nike have recently In the case of CVS, which reported disappointing financial results, management provided an optimistic outlook for 2024 at its investor day in December, which we believed was in line with our expectations. Unfortunately, management incorrectly estimated the medical loss rate and expected profitability reported for Medicare Advantage Life in 2024 and 2025. This triggered a violation of the position paper as it appears to be restricted in both.”
Overall, CVS ranks 10th on our list of most undervalued large-cap stocks to invest in. While we see the potential of CVS as an investment, we believe AI stocks have great potential to deliver high returns and do so quickly. shorter period. If you’re looking for AI stocks that have a better future than CVS but trade at less than 5 times earnings, check out our report on the cheapest AI stocks.
Read next: $30 trillion opportunity: 15 humanoid robot stocks to buy, according to Morgan Stanley and Jim Cramer, says NVIDIA has ‘become a wasteland.’
Disclosure: None. This article was originally published on Insider Monkey.
