Vltava Fund, an investment management company, recently released its second-quarter 2024 investor letter. A copy of the letter can be downloaded here. The letter discusses how the firm determines the size of each holding in the portfolio. The firm keeps the number of positions in the portfolio between 20 and 25 considering it as ideal. It gives ample opportunities for diversification. Please review the fund’s top five holdings to see its best choices for 2024.
Vltava Fund highlighted stocks like CVS Health Corporation (NYSE:CVS), in the second quarter 2024 investor letter. CVS Health Corporation (NYSE:CVS) is a US-based health solutions provider. The one-month return of CVS Health Corporation (NYSE:CVS) was -6.59%, and its shares lost 18.52% of their value over the last 52 weeks. On July 3, 2024, CVS Health Corporation (NYSE:CVS) stock closed at $56.70 per share with a market capitalization of $71.179 billion.
Vltava Fund stated the following regarding CVS Health Corporation (NYSE:CVS) in its Q2 2024 investor letter:
“CVS Health Corporation (NYSE:CVS) used to be a very popular stock in the markets. The share price growth, along with investor optimism, peaked sometime in mid-2015. Thereafter, investor enthusiasm gradually began to wane and criticism of management’s capital allocation surfaced. The criticisms intensified especially in late 2017, when CVS announced its acquisition of the health insurer Aetna for USD 69 billion. This price was very excessive and the acquisition also saddled CVS with a large debt burden for many years to come. The stock price responded with further gradual, significant decline. The stock came onto our radar in 2020, when it was very cheap. CVS’s business looked solid to us and generated strong free cash flow. Our positive view of the company was reinforced when CEO Larry Merlo announced his departure in that year. He had been behind the acquisition of Aetna, and new CEO Karen Lynch, who had been Aetna’s CEO up until that time, announced that her main goals would include reducing debt and returning excess cash to shareholders. The poor acquisition of Aetna was not her doing and she had enjoyed a good reputation as Aetna’s CEO. We succumbed to the belief that overpriced acquisitions were a thing of the past and that the new management would allocate CVS capital more efficiently. We were wrong. For a while, it looked like management was on the right track and the share price was rising. But then management reverted to its original acquisition practices. CVS announced two more large acquisitions in 2022 and 2023. These were Signify Health and Oak Street Health. The prices of both acquisitions made no sense to us at all. We realised that relying upon management to begin behaving rationally in terms of capital allocation was not enough, and particularly so in cases of companies where this has not been the case in the past. So, we began gradually to reduce our position in CVS and now the company is no longer in the portfolio. Had we reacted faster, we could have made more money in this stock. In any case, we regard CVS to be our biggest buying mistake of recent years. In the hands of more capable management and with a rational allocation of capital, CVS stock could be at three times its price today. In this instance, we underestimated the negative impact of the human factor on the value of the company. This is a very important lesson for the future.”
A row of shelves in a retail pharmacy, demonstrating the variety of drugs and over-the-counter products.
CVS Health Corporation (NYSE:CVS) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 54 hedge fund portfolios held CVS Health Corporation (NYSE:CVS) at the end of the first quarter which was 67 in the previous quarter. While we acknowledge the potential of CVS Health Corporation (NYSE: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 timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
We discussed CVS Health Corporation (NYSE:CVS) in another article and shared the list of largest companies in every state in the US. Ariel Global Fund added CVS Health Corporation (NYSE:CVS) to its portfolio in Q1 2024. In addition, please check out our hedge fund investor letters Q2 2024 page for more investor letters from hedge funds and other leading investors.
READ NEXT: Michael Burry Is Selling These Stocks and A New Dawn Is Coming to US Stocks.
Disclosure: None. This article is originally published at Insider Monkey.
