We recently compiled a list of the 11 Oversold Blue Chip Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where CVS Health Corporation (NYSE:CVS) stands against the other oversold blue chip stocks.
The uncertainty related to the tariff announcements continues to influence Wall Street. Reuters reported that the S&P 500 is down 4.3% since Trump took office on January 20, and tariffs are the main concern for investors as they believe that can adversely impact the economic growth and be inflationary. While Trump believes that tariffs can increase the country’s revenue, fuel broad-based growth, and can be used as a negotiating tool with other countries, the investors believe that trade policies can weaken consumer confidence and limit the capital spending from companies.
Long Term Outlook Remains Intact
As per Franklin Templeton, the US equities have managed to provide strong gains over the past few years, with the S&P 500 repeatedly touching record highs, thanks to the Magnificent Seven’s dominance in AI. Despite elevated valuations, the broader market outlook is positive. Innovation and investment continue at a pace, sales growth has been accelerating, and earnings are expected to see a double-digit rise this year. Also, the US economy has a more business-friendly administration. That being said, there are risks, mainly related to the US trade policy and the expected impact of tariffs on critical sectors, including technology.
Amidst such uncertainties, Franklin Templeton believes that investor confidence in the US equities is expected to remain strong. While the risks might be elevated, the new administration’s policy changes are expected to finally result in long-term positives for the broader US economy.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
Blue Chips to Provide Shelter
While the Mag 7 stocks are well-placed for the long-term growth, the market leadership is expected to broaden as and when acceleration in innovation occurs, says Franklin Templeton. The investment firm believes that active management is of utmost importance. The pivot from AI infrastructure to platforms remains well underway. Therefore, identifying the right companies at the right time—ones possessing the technology, strategy, and adaptability to maintain and sustain long-term growth—are expected to be critical to investment success.
The US equities, mainly large caps, have been performing strongly, courtesy of the innovation and investment. Notably, over the past 6 months, the Dow Jones Industrial Average has seen an increase of over ~4.5%. Even though the Mag 7 stocks continue to support the market momentum, the investment firm sees growing opportunities beyond such market leaders. With the continuation of AI-driven cycle, the competitive landscape remains dynamic and has been creating new growth areas.
Our Methodology
To list the 11 Oversold Blue Chip Stocks to Buy According to Hedge Funds, we used a screener and the SPDR S&P 500 ETF to shortlist the companies that have declined over the past year. Next, we chose the stocks that are popular among hedge funds, as of Q4 2024. Finally, the stocks were arranged in ascending order of their hedge fund sentiments.
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 373.4% since May 2014, beating its benchmark by 218 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 Corporation (NYSE:CVS)
% Decline Over Past 1 Year: ~12.6%
Number of Hedge Fund Holders: 74
Market Cap as on March 7: $83.6 billion
CVS Health Corporation (NYSE:CVS) offers health solutions in the US. The company had its stock upgraded by an analyst after it surpassed the quarterly profit expectations by a wide margin, and as it continues to make strides in its pharmacy-benefit-manager business. Leerink Partners analyst Michael Cherny upped the rating on CVS Health Corporation (NYSE:CVS)’s stock to “Buy” from “Market perform,” increasing the price target to $75. As per the analyst, the company continues to benefit from stabilization in its Aetna health-insurance and pharmacy-benefits businesses. In Q4 2024, the company’s GAAP diluted EPS came in at $1.30 and adjusted EPS was $1.19.
CVS Health Corporation (NYSE:CVS) continues to see growth in critical areas of its business, such as the Pharmacy and Consumer Wellness segment, while it addresses the industry-wide challenges that impacted its Health Care Benefits segment. The company’s integrated healthcare model offers a unique value proposition in the market. By owning several components of the healthcare value chain, CVS Health Corporation (NYSE:CVS) can realize cost savings and operational efficiencies which the standalone competitors cannot match.
Ariel Investments, an investment management company, released its Q4 2024 investor letter. Here is what the fund said:
“Lastly, American healthcare company, CVS Health Corporation (NYSE:CVS) underperformed in the period. The company preannounced a third-quarter preliminary profit estimate materially below consensus expectations and pulled its 2024 guidance due to continued medical cost pressures. Investor concerns around the recently proposed Pharmacy Benefit Management (PBM) legislation further weighed on shares. Despite these challenges, management reiterated its focus on improving margins and enhancing its positioning in Medicare Advantage (MA). CVS believes the program can remain an attractive business for Aetna and CVS Health over time as it implements a multi-year repricing strategy across plan level benefits. Meanwhile, CVS continues to take actions to drive long-term success including the appointment of longtime company executive David Joyner as President and CEO as well as adding four new board members.”
Overall CVS ranks 5th on our list of the oversold blue chip stocks to buy according to hedge funds. While we acknowledge the potential of CVS as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued 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.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.
