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QQQ   274.55 (+0.99%)
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CVS Remains a Solid Stock In the Flight to Safety

Thursday, July 9, 2020 | Chris Markoch
CVS Remains a Solid Stock In the Flight to Safety

In a market that seems to be looking for any green shoot it can find, CVS (NYSE:CVS) has been a laggard. CVS stock plummeted nearly 30% from mid-February until mid-March. That wasn’t much different from the rest of the market.

But since then, the stock has only recovered about half of that loss and sits about 16% off its March low. Unfortunately, that’s not a compelling story to get investors interested in your stock. Fortunately, CVS has a bigger story to tell.

CVS May Be a Sneaky Growth Stock Ahead of Earnings

CVS announced that it would be issuing its quarterly dividend in August. The company pays out a $2.00 per share annual dividend. Although the company has not increased its dividend since 2016, they have consistently issued a dividend. And with a payout ratio of under 30%, the dividend looks to be very secure.

But one of the stories about CVS that doesn’t get enough attention is the way it beats earnings. The company has beaten analysts’ earnings per share expectations for the last 17 quarters. And the company has also beaten revenue expectations for the last eight quarters. Those are the kind of surprises that investors enjoy.

Compare that to Walgreens Boots Alliance (NYSE:WBA). The company recently missed on their quarterly earnings but announced an increase in its dividend. At first glance, Walgreen’s 4.42% dividend yield may look more attractive than that of CVS, but the company actually pays out a smaller dividend. And investors generally turn a raised eyebrow at companies that miss on earnings but raise its dividend as a way to entice investors.

However, the story of CVS goes beyond its reliable dividend.

Death, Taxes…Prescription Drugs?

There’s an old saying that the only sure things are death and taxes. Given the events of 2020, I might amend that to include another sure thing…prescription drugs. As millions of Americans were sheltered in place, concessions had to be made to budgets, particularly in the case of the nearly 40 million that lost their jobs, even if it was just temporarily, during those early days of the pandemic.

One of the most successful initiatives the company has undertaken during the Covid-19 pandemic is its home delivery for prescription drugs. When discussing the company’s first-quarter earnings in May, Chief Executive Officer (CEO) Larry Merlo cited that home delivery for prescription drugs had increased 1,000% in the quarter, with digital refills up 50%.

And, the company also noted that as customers refilled their prescription drugs, they were buying other items as well. Merlo noted that there was a fourfold increase in customers adding front of store items to their orders.

CVS Has Also Been a Leader in Coronavirus Testing

Although the novel coronavirus has forced CVS to put aside the roll-out of its HealthHUB initiative, the company was in a unique position to provide a service for front line workers. The company has opened up over 1,000 testing sites. And in its first-quarter earnings, Merlo said that CVS had already conducted over 9,000 tests.

Many Investors May Want Off the Wild Ride

In the first half of 2020, equity investors have been on a wild ride. Losses from the selloff that started in February and accelerated in March have largely been reversed in the broader market. However, not all companies have benefited from that, including defensive stocks like CVS.

And there are reasons for that.

First, as many employees are working from home, they’ve found more time to trade. This has given birth to what’s termed the “Robinhood market.” Simply put, there are a lot more day traders than there used to be. And those investors are chasing after the cheap stocks in hopes of pocketing a quick profit.

Second, the market is forward-thinking. The drop in February was signaling the expectations of the mitigation measures that would engulf the world in March. But the opposite side of that coin is that the market is rallying now, not because investors believe the pandemic is over, but because they largely believe the worst has been priced in and they are moving forward.

Both of these reasons have been great for growth stocks. But not so much for dividend stocks like CVS. Normally, a defensive stock would be expected to do well during a global pandemic. However, it appears that investors have their attention turned elsewhere.

That may be changing. As the economy struggles to get beyond the soft reopening that is underway, some investors are beginning to take a look at the rest of the year. And with an election a certainty and a vaccine still an unknown, there is an opportunity for dividend stocks to make a resurgence.

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
CVS Health (CVS)2.4$64.31-1.0%3.11%10.22Buy$82.13
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15 REITS Analysts Can't Stop Recommending

There are more than 200 publicly-traded real-estate investment trusts (REITs) that you can buy through your brokerage account. Given the sheer number of REITs, it can be hard to identify which real-estate stocks are going to outperform the market.

Fortunately, Wall Street's brightest minds have already done this for us. Every year, analyst issue approximately 4,000 distinct recommendations for REITs. Analysts don't always get their "buy" ratings right, but it's worth taking a hard look when several analysts from different brokerages and research firm are giving "strong buy" and "buy" ratings to the same REIT.

This slide show lists the 15 REITs that have the highest average analyst recommendations from Wall Street's equities research analysts over the last 12 months.

View the "15 REITS Analysts Can't Stop Recommending".

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