CVS Health Corp (CVS-N)

Numbers are improving under the new CEO, with good numbers from Aetna and core drugstore business (they closed the weak performers). Though the health insurers like UNH have taken it on the chin recently, he expects Aetna to score. They report Thursday.

Is up 50.5% this year, benfitting from chief rival Walgreens are going private, and CVS' managed care business, Aetna, is putting up better numbers. CVS got too cheap last year, but mounted a comeback after hiring a new CEO. But it remains a drugstore chain, which he doesn't like, given Amazon's dominance.

He just bought it after earnings. Finally, we're seeing positive momentum with earnings growth and lower costs. It's an easy trade. An investor would now see a fundamental turnaround.

Shocking that it rallied 25.8% in January, since it was spiralling last year, down 43%. There's no clear catalyst for their rally, though it helped that Medicare payments would increase from 2025 to 2026. He's waiting for their report next Wednesday before deciding.

It has been a turn-around for a long time but hasn't performed well. It lost a few key contracts in the past two years. He prefers United Health.

Company fundamentals are challenging. On paper, looks like a good model. But in practice, fail after fail. Overhang of healthcare malaise. Doesn't matter what the price is, you need fundamental quality to create value. Pass.

Weak technical structure. 200-day MA falling, and stock price is below that. Longer-term weekly charts look just as tough. Earnings are tough in physical stores. Trump's (perhaps empty) threats to remove middle benefits management has impacted stock. Good yield at 5.81%, but how secure is it?

Keep a close eye on it, as technicals are telling you that things could get worse.

It's been problem after problem for them. Theft is forcing them to lose market share to Amazon. They're closing their worst-performing stores, opening health clinics and double-down on their non-drugstore businesses like Aetna and health insurance benefits manager. They have more than 900 medic clinics and 200 Oak Street health clinics. (Walgreens is reducing their clinics and Walmart got rid of all their clinics, because they can't find workers.) CVS bought Aetna 6 years ago, but managed care providers have been struggling for 1.5 years as people catch on post-Covid surgeries, which means paying out for those procedures. Meanwhile, Aetna dropped the ball on Medicare advantage plans for seniors; the plans were too cheap, which attracted many more customers, so people are using more healthcare services as the government is getting stingier with payments. Poor performance forced the CEO to be fired last October. Shares down -25% in December alone (healthcare stocks have fallen out of favour since the election and the Humana CEO murder). Then, Trump threatens to cut out the middlemen in health insurance. Just two days ago, the Justice Department slapped them with a lawsuit over controlled substances, which he thinks is damning. Their balance sheet is weak.

He sold it 3 months ago after holding it a long time. Shares keep falling. They fired their CEO. On paper, this stock looked good--reasonable valuation and good growth prospects, but they could never execute. There was always one piece in the vertical integration that failed them. That's why he left. The shares look cheap now, but can get cheaper. This is a value trap.

Not only pharmacies, but offer health insurance, home care, pharmacy benefits management. CVS is the best-positioned healthcare company in the US. Trades at only 10x PE and pays a 5% dividend yield. He expects double-digit earnings growth in coming years despite the soft retail environment. Problems with Medicaid reimbursement should ease with the new administration and looser regulation.

It has taken one step forward and two steps backward for some time. The insurance business and pharmacy stores are holding it back. Only 75% of its stores are profitable. There are offers from Walmart and others to provide same day delivery services and this takes business away from CVS.

Recently bought. A laggard with a low valuation. A better choice than high-flying names.

Many headwinds, too big to overcome. Sell, take the loss.

He is expecting some relief on the regulatory side with less competition. It has a solid dividend yield and lots of cash flow. The stock looks cheap but the earnings are flat-lining.