Jim Cramer’s December Portfolio: Top 10 Stocks to Watch

4. CVS Health Corp (NYSE:CVS)

Number of Hedge Fund Investors: 63

Talking about CVS Health Corp (NYSE:CVS), Jim Cramer said in a recent program on CNBC that he’s waiting to see where the stock bottoms and said he sees “maybe” another bad quarter for the company.

“I’ve been waiting to see where it could bottom, and Deutsche Banks taking the leap might be a little too early because there could be one more bad quarter. But it’s worth talking about, and I think it’s good. It’s better than Honeywell, which is down five, because they don’t know how to tell the story.”

Cramer said CVS Health Corp (NYSE:CVS) new CEO David Joyner is doing a “good job.”

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%.

Coho Relative Value Equity Strategy stated the following regarding CVS Health Corporation (NYSE:CVS) in its Q2 2024 investor letter:

“While we believe each of those companies is performing in line with or better than our expectations and that the moves lower are unjustified, both CVS Health Corporation (NYSE:CVS) and Nike reported disappointing performance in recent results. In CVS’ case, management gave an optimistic outlook to 2024 at its December Investor Day, which we believed was consistent with our expectations. Unfortunately, management misestimated its medical loss ratio and the anticipated profitability in its book for Medicare Advantaged lives. This triggered a position paper violation, as the company’s financial flexibility now looks constrained in both 2024 and 2025.”