Jim Cramer Latest Portfolio: 10 Stocks to Watch in September

3. CVS Health Corp (NYSE:CVS)

Number of Hedge Fund Investors: 60

A caller asked Jim Cramer about CVS Health Corp (NYSE:CVS). Cramer said he’s “concerned” about the company

“I do not like stocks that sell 7 times earnings and have a 4.7% yield. You are too bullish if you endorse it. Let’s just keep it on the ice for the moment,” Cramer said.

What ails CVS Health Corp (NYSE:CVS) is the rising competition. CVS has expanded beyond retail, particularly after acquiring Aetna in 2018, but retail and pharmacy sales still account for around 50% of its total revenue. The pharmacy services segment is facing growing competition from non-traditional retailers like Kroger, Walmart, and Costco, as well as from new disruptors like Mark Cuban’s Cost Plus Drugs and Amazon, which has expanded into healthcare and pharmaceutical sales.

Retail margins are also under pressure, with competitors offering cheaper prescriptions and household goods. CVS Health Corp (NYSE:CVS) market share in pharmacy services has only grown modestly, from 23.8% in 2017 to 25.7% in 2023, despite significant acquisitions. CVS Health Corp (NYSE:CVS) has spent $96.6 billion on deals like Aetna, Signify Health, and Oak Street Health. Meanwhile, CVS’s long-term debt has risen sharply, from $25.1 billion in 2017 to $65 billion, and shares outstanding have grown at an annual rate of 3.5%.

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.”