We recently compiled a list of the 10 Best Fortune 500 Stocks To Buy Now. In this article, we are going to take a look at where CVS Health Corp. (NYSE:CVS) stands against the other Fortune 500 stocks.
Should Investors Be Overly Cautious?
The aggregate revenue of the Fortune 500 companies in 2023 reached a record $41 trillion, up 0.1% year-over-year. Profits also rose 2% after declining earlier in 2022. The US took the lead from Greater China with the most companies on the Fortune 500 list for the first time since 2018. It has 139 companies as of August this year, an increase of 3 from 2023, while Greater China has 133 companies, down 9 from last year.
The financial sector, including banks and insurance companies, led all industries with the most Fortune 500 companies. Collectively tech giants brought in $282 billion in net income, up from $233 billion the previous year. Currently, 13 companies are making their Fortune 500 debut, reflecting the world’s fascination with AI and weight-loss drugs.
While the S&P 500 has recovered most of its losses, the rebound is being led by sectors like real estate, utilities, and consumer staples rather than major tech companies. Investors are shifting focus due to concerns over economic growth and expectations of Fed rate cuts.
Still, it seems like investors think that while investment portfolios should be diversified given the current economic conditions, this sentiment does not imply divesting from tech stocks, which of course contribute greatly to the aggregate Fortune 500 revenue. Jason Draho, UBS Global Wealth Management head of Americas Asset Allocation, emphasized this sentiment and we covered this earlier in our article about the 10 Best Tech Stocks To Buy Right Now Under $10:
“…investors should view potential dips in tech stocks as good long-term buying opportunities, as 10% corrections are historically good entry points in tech… He thinks that this market volatility is acyclical. The recent sell-off in the tech sector was not primarily due to economic concerns but rather to sector-specific issues. Despite this, tech giants will continue to benefit from the AI CapEx investment story. While there may be short-term challenges, the long-term outlook for these companies remains positive… Draho also cautioned against over-concentrating portfolios in the sector. He suggested diversifying exposure by investing in sector leaders as well as companies likely to benefit from tech disruption as a way to manage potential downside risks in tech stocks.”
Just last week, Dan Greenhaus, Solus Alternative Asset Management’s chief strategist discussed markets, and the rebound’s staying power, all while suggesting that predicting the Fed’s next move had become more difficult.
He discussed the ongoing recession concerns, particularly after negative comments from financial representatives. Despite these worries, he believes the US consumer is performing well, the economy is stable, and corporate profits are exceeding expectations. This context suggests that the recent sell-off in certain AI stocks was followed by a justified rebound, as issues appear limited to recent trends.
The S&P 500 is currently facing resistance around the 5,600 level, a key point of concern for investors. Dan Greenhaus noted that the recent inversion of the yield curve raised anxiety but the 2-10-year curve is slightly positive. Despite these worries, credit spreads for investment-grade bonds remain stable, and overall cross-asset indicators suggest a stable market environment.
Recently, discussions around potential interest rate changes have gained momentum, particularly following insights from Goldman Sachs CEO David Solomon. He indicated a likely 25 basis point cut by the Federal Reserve, although he also acknowledged the possibility of a 50 basis point reduction. Greenhaus believes the Fed will opt for a 25 basis point cut, marking the start of a series of reductions. This perspective is supported by the normalization of inflation and a slowing economy.
According to Greenhaus, the cyclical components of the stock market appear to be performing well, indicating that the overall economic fundamentals remain robust, and there is no concrete case for any specific rate cut scenario. As Fortune 500 companies continue to generate record revenues and profits as well, investor sentiments should not be shifting drastically. With that being said, we’re here with a list of 10 best Fortune 500 stocks to buy now.
Methodology
We first looked at the list of Fortune 500 companies, as of 2024. We then selected 10 stocks from these Fortune 500 companies that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
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).
A row of shelves in a retail pharmacy, demonstrating the variety of drugs and over-the-counter products.
CVS Health Corp. (NYSE:CVS)
Market Capitalization as of September 14: $72.86 billion
Number of Hedge Fund Holders: 60
CVS Health Corp. (NYSE:CVS) is a healthcare company that owns CVS Pharmacy, a retail pharmacy chain; CVS Caremark, a pharmacy benefits manager; and Aetna, a health insurance provider, among many other brands. It is the world’s second-largest healthcare company that operates many businesses, including retail pharmacies, health insurance plans, and specialty pharmacy services.
In its Q2 2024 results, the company revised its earnings forecast for the full year downward due to challenges in its Health Care Benefits segment, which includes its insurance division, Aetna. This marks the second time it has adjusted its 2024 forecast, having previously lowered guidance after its Q1 results for the same reasons.
However, the company still reported a 2.60% year-over-year revenue improvement in FQ2 2024. The revenue was $91.23 billion, while the earnings per share were $1.83. Investors are still expecting returns as we see that 60 hedge funds are long it. The highest stake is at $764,023,075 by Pzena Investment Management.
The company serves over 186 million people. The company also grew Aetna medical members using CVS pharmacies to 9 million, an 8% increase, and 13.8 million Aetna members are now covered by Caremark, a 13% rise.
CVS Health Corp. (NYSE:CVS) is positioned for long-term success, driven by its innovative strategies and integrated healthcare model. The company is accelerating growth by implementing transparent pharmacy reimbursement models like CVS CostVantage, increasing biosimilar adoption, and enhancing patient outcomes through its connected healthcare delivery assets.
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 10th on our list of the best Fortune 500 stocks to buy. While we acknowledge the potential of CVS as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. 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.
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Disclosure: None. This article is originally published at Insider Monkey.