CVS: Buy These 3 Value Stocks as Investors Rotate Out of Big Tech

With the U.S. Senate’s passage of President Biden’s $1.9 trillion American Rescue Plan Act of 2021 last week, investors are now much more optimistic about a relatively quick revival of many industries. There is a widespread belief among them that large companies in the pandemic-hit sectors like industrials and retail will gain momentum quickly. Hence, investors have begun their transition into sectors other than technology.

The prospect of increased government spending and economic-recovery stoked inflation concerns led the yield of the 10-year Treasury note to yield close to its one-year high. Also, rising yields could spell trouble for the technology sector, which carries a heavy debt load.

So, with investors now considering value stocks to capitalize on their potential rebound, CVS Health Corporation (CVS), Takeda Pharmaceutical Company Limited (TAK), and Cardinal Health, Inc. (CAH) could be solid choices. We view these value stocks in the healthcare space as fundamentally strong and are well-positioned to deliver solid returns based on their innovative offerings.

CVS Health Corporation (CVS)

CVS is a healthcare service provider in the U.S. The company’s pharmacy services include pharmacy benefit management solutions, which include retail pharmacy network management, plan design and administration, and formulary management.

CVS’s revenue for the fourth quarter, ended December 31, 2020, rose 4% year-over-year to $69.5 billion, due to growth in its health care benefits and retail/LTC segments. It’s EPS for the quarter fell to $0.75 from $1.33 posted in the prior-year period. CVS’ enterprise prescriptions for the quarter rose 1.1% over the year to 742.1 million.

Analysts expect CVS’s revenue for the quarter ending March 31, 2021 to be $68.3 billion, representing a 2.4% year-over-year increase. Its EPS is expected to grow at the rate of 3.8% per annum over the next five years.

The stock is also quite undervalued currently. It has a forward ev/ebitda of 9.26x versus the industry average 16.59x.

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CVS rose 3.4% on a year-to-date basis to close yesterday’s trading session at $71.73. Over the past six months, the stock surged 18.6%.

It’s no surprise that CVS has an overall rating of B, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

CVS has a Value Grade of A and Stability Grade of B. In the C-rated Medical – Drug Stores industry, it is ranked #1.

In addition to the POWR Ratings grades I’ve just highlighted, you can see the CVS ratings for Growth, Momentum, Quality, and Sentiment.

Takeda Pharmaceutical Company Limited (TAK)

TAK is a Japanese healthcare giant that is engaged in researching, developing, manufacturing, and selling pharmaceutical products, quasi-drug consumer products, over-the-counter medicines and other healthcare products. The company operates mainly in gastroenterology, oncology, neuroscience, and rare diseases such as metabolic and hematology.

For the third quarter, ended December 31, 2020, TAK’s revenue dropped 3.6% year-over-year to JPY 2.4 trillion. However, its 1% underlying revenue growth for the third quarter was driven by strong growth in Immunoglobulin, ENTYVIO, and TAKHZYRO. Its EPS for the quarter rose to JPY 115 from JPY 87 posted in the prior year period.

Analysts expect TAK’s revenue for the quarter ending March 31, 2021 to be $7.3 billion, representing a 1.2% year-over-year rise. Its EPS is expected to grow at the rate of 0.6% per annum over the next five years.

TAK’s is currently undervalued. It’s trailing ev/ebitda of 12.77x compares to the industry average 20.65x.

TAK ended yesterday’s trading session at $18.10, declining 4.1% year-to-date. During the past six months, TAK declined 2.8%.

Due to its bright prospects, TAK has an overall rating of B, which equates to Buy in our POWR Ratings system. TAK has a Growth and Value Grade of A and Stability Grade of B. In the 489-stock Biotech industry, it is ranked #6.

Click here to see the additional POWR Ratings for TAK (Momentum, Quality, and Sentiment)

Cardinal Health, Inc. (CAH)

CAH is an integrated healthcare services and products company in the United States and globally. The company offers customized solutions for hospitals, pharmacies, healthcare systems, clinical laboratories, and physician offices. Pharmaceutical and Medical are the two segments through which it operates.

During the second quarter, ended December 31, 2021, CAH’s revenue rose 5% year-over-year to $41.5 million. The Medical segment saw 7% year-over-year revenue growth due to higher sales of personal protective equipment (PPE) and higher volumes in the lab business. Its EPS for the quarter climbed to $2.13 from $0.75 posted in the same period last year.

Analysts expect CAH’s revenue for the quarter ending March 31, 2021 to be $40 billion, representing a 2.1% year-over-year increase. Its EPS is expected to grow at the rate of 2.4% per annum over the next five years.

CAH ended yesterday’s trading session at $54.70, declining 0.1% year-to-date. During the past six months, CAH has surged 8.7%. CAH’s trailing ev/ebitda of 6.8x compares to the industry average 20.65x.

CAH’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our POWR Ratings system. CAH has a Value Grade of A, and Stability and Growth Grade of B. In the 77-stock Medical – Services industry, it is ranked #6.

To see additional POWR Ratings for Momentum, Sentiment, and Quality for CAH, Click here.

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

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CVS shares were trading at $72.17 per share on Tuesday afternoon, up $0.44 (+0.61%). Year-to-date, CVS has gained 6.37%, versus a 4.21% rise in the benchmark S&P 500 index during the same period.

About the Author: Namrata Sen Chanda

Namrata is an accomplished financial journalist, with nearly a decade of experience. She specializes in interpreting news releases and framing investment strategies, and has worked with some of the leading companies in real estate, banking, insurance, mutual funds, financial research, fintech, and investment education. More...