CVS Health Corp (CVS)

Really likes. He’s doubled down. There is headline risk with the Aetna deal still ongoing, the Amazon effect, and US rhetoric about decreasing drug costs. Underlying earnings trend is strong. At a great level now. Over next year or two should tick back up.

She has owned this for a number of years. They operate a large pharmacy stores. They are buying a health insurance company. Amazon may be a threat but CVS have their own direct delivery service. They reported today and had a good quarter. This industry is evolving and have to monitor it closely. They are well positioned to compete.

He is negative on the space of drug distributors and pharmacy benefits managers. He thinks that policy pressures and pricing pressures make the PBM side of CVS a bad investment. The unrelenting pressure is driving more business to United Health, which is very efficient. Going top down: He doesn’t like consumer staples at this time and within that he doesn’t like distributors, and within that is all the difficulty in distribution of pharma. He thinks they’ve make good strides improving the retail, but the back end will be very tough for a long time. He would recommend cutting losses for someone who owns this and investing in medical devices or in a more general healthcare ETF. (Analysts’ price target is $85.47)

They are one of the largest pharma distributor in the US. Their recent acquisition is a plan to position the company in health management – helping companies send orders to pharmacies. The company is one they are looking into. The stock is trading at a reasonable valuation and it generates good cash flow. The debt load is not onerous. They are here to stay. (Analysts’ price target is $86)

He has been recommending this for a while, buying a company at less than 9 times earnings. A really good business at a discounted price right now. The headwinds of the headline risk against pharma has played out. A strong buy for the next 5 years investment horizon.

(A Top Pick May 1/17 - Down 19%) Still like it. A health company that went through a vertical integration buying Aetna. Not expensive on a cash flow basis. Amazon.com Inc. (AMZN-O) purchase of Pill Pack affected the stock.

Shorter term the fact that Amazon said it is entering the space affects sentiment. He still doesn’t like the retail noise. He prefers United Health Group (UNH-N). (Analysts’ price target is $85.40)

Amazon is trying to work their way into the health industry and this is directly impacting this company. We don’t know how it will impact CVS in the long term, but the short term fear is creating headwinds. Overall, a good business, but he would wait to see what happens.

Model price is $83.03. The stock is at $70.50 today. CVS bottomed out. He expects the high to be about $87. However, any time Amazon can announce again that it is going into the pharma business, CVS will drop. Its downside risk is about $63.60 and he would buy at that price. (Analysts’ price target is $50.41)

He bought some this year. The first time in a while. It is cheap. They are trying to diversify across verticals. Their acquisition needs approval so the stock is stuck.

He bought some this year. The first time in a while. It is cheap. They are trying to diversify across verticals. Their acquisition needs approval so the stock is stuck.

(A Top Pick Jun. 21'17, Down 14%) It is an interesting space. They are seeing a changing dynamic in healthcare. They are acquiring another company. Their vision is to control the patient experience. They want to provide more health care than just filling a prescription. Most healthcare service is the monitoring of chronic conditions. They should bring healthcare costs down. This is an area where the market has not rewarded them.

(Past Top Pick on April 13, 2017, Down 14%) Still likes it. It's more than the Shoppers Drug Mart of the US--it's a healthcare company. Trading at 9x earnings, good free cash flow. Their Aetna deal with work out.

Trading at 9x earnings and paying a 3.1% dividend. The success of their large Aetna purchase (which still needs approval) will depend on how well CVS integrates it, which is risky. CVS is about integration: long-term care, pharmacy and home fusion. This integration can propel higher margins. (Analysts' price target: $86.81)

A healthcare stock that pays a decent dividend is a popular hiding place, but this trade got really crowded. CVS got into a down channel. Wait until everybody has sold till you start buying. He's worried that investors are still buying and
analysts are still recommending this--they've been wrong.