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Is CVS Health Corporation (CVS) the Most Profitable Value Stock To Invest In?
We recently compiled a list of the 10 Most Profitable Value Stocks To Invest In.In this article, we are going to take a look at where CVS Health Corporation (NYSE:CVS) stands against the other most profitable value stocks to invest in.
Rotating Back to Value Sectors is the Better Option
Value investing is essentially focused on looking at stocks trading at a discount to their intrinsic value. Such stocks happen to be more mature, less volatile, and have strong fundamentals. 2024 has been significant for defensive and value stocks, especially considering that growth stocks have been trading at high valuations all year round. Analysts expect the Magnificent Seven to shed their valuation significantly and investors continue to remain cautious amid a turbulent market environment.
On October 22, Brian Mulberry, Zacks Investment Management client portfolio manager, joined Wealth! on Yahoo Finance to discuss his market thesis and share why he prefers value stocks over growth stocks under the current macroeconomic backdrop. The S&P 500, in terms of the broader market, is currently trading at 22 times its forward earnings. Speaking of the magnificent seven, their valuations are getting a bit “top-heavy” and have been consistently trading between the mid to high 30s, adds Mulberry.
On the flip side, looking at utilities’ earnings growth and forward P/E, these companies are trading at a FWD P/E of only 9 or 10. Additionally, within these sectors, multiple better-performing individual stocks are expected to post sustainable or "durable earnings growth."
Mulberry suggests that investors can do much better at current valuation levels if they are rotating back to some traditional sectors and value stocks. He adds that the big banks also expect to report strong earnings and will continue to do so as the interest rates go down even further in 2025.
Value stocks not only have stronger fundamentals, but they also have legacy businesses with sustainable business models. With the current backdrop of uncertainty, many analysts and strategists alike believe that low-risk and value businesses are the best bets for investors. That said, let’s take a look at the 10 most profitable value stocks to invest in.
Our Methodology
To come up with the 10 most profitable value stocks to invest in we used the Finviz stock screener to identify stocks in value-oriented sectors like consumer staples, financials, energy, healthcare, and more, with forward PE ratios of less than 15, positive 10-year revenue growth rates, and positive trailing 12-month net income. We then examined the hedge fund sentiment of each stock and picked the most popular ones. Our list is in ascending order of the number of hedge fund holders as of Q2 2024 primarily and 10-year revenue growth rates, forward P/E, and TTM net income secondarily.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Is CVS Health Corporation (CVS) the Most Profitable Value Stock To Invest In?
A row of shelves in a retail pharmacy, demonstrating the variety of drugs and over-the-counter products.
Trailing 12 Month (TTM) Net Income (June 30): $7.19 Billion
CVS Health Corporation (NYSE:CVS) ranks fourth on our list of the most profitable value stocks to invest in. The healthcare company provides insurance services, offers pharmaceutical benefits, and has a retail pharmacy chain. The company provides affordable healthcare to more than 100 million people. Aetna, its health insurance business, covers almost 39 million people with their medical plans, medicare plans, dental plans, behavioral health programs, and Medicaid services.
CVS Health Corporation (NYSE:CVS) has been leveraging its health expertise to improve the way customers access their services. On October 16, the company’s insurance business, Aetna, introduced SimplePay Health. The new service is an alternative health plan aimed at meeting the diverse needs of self-insured clients. The plan reduces costs for customers and improves health outcomes.
To align with its goals, on October 1, Aetna announced its medicare plans for 2025. The plan is focused on meeting the most important health needs of members by ensuring people have access to reliable and affordable healthcare when needed. In 2025, Aetna will expand its Medicare Advantage Prescription Drug (MAPD) plans to 44 states including Washington DC, bringing the total count to 2,259 counties, accessible by 59 million Medicare-eligible beneficiaries. In addition to that, 83% of Medicare-eligible beneficiaries in the United States will have access to a $0 monthly premium Medicare Advantage (MA) by Aetna.
CVS Health Corporation (NYSE:CVS) not only has an expansive and loyal customer base, but it is also improving its plans and services continuously to ensure its customers are retained for the long term. Speaking of financials, while the company is profitable, it expects to improve its profit margin in 2025, which is supported by cost-saving initiatives.
Ariel Investments’ Ariel Global Fund stated the following regarding CVS Health Corporation (NYSE:CVS) in its Q2 2024 investor letter:
"American healthcare company, CVS Health Corporation (NYSE:CVS), also declined following disappointing earnings results and a subsequent reduction in full year guidance. The miss was primarily due to increased utilization of Medicare Advantage plans and weakness in the health services segment driven by the loss of a large client and continued pharmacy client price improvements. In response, management reiterated its focus on improving margins and enhancing its positioning in Medicare Advantage. CVS believes the program can remain an attractive business for Aetna and CVS Health over time and will construct its bid for 2025 as a multi-year repricing opportunity across plan level benefits. Meanwhile, CVS continues to return capital to shareholders through dividends and a recent accelerated share repurchase transaction."
Overall CVS ranks 4th among the 10 most profitable value stocks to invest in. While we acknowledge the potential of CVS as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CVS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
