We recently published a list of 7 Cheap Blue Chip Stocks to Invest in Now. In this article, we are going to take a look at where Cigna Group (NYSE:CI) stands against other cheap blue chip stocks.
Should Investors Revisit the Idea of the S&P 500 Being a Low-Risk Investment?
The technology sector has been the highlight of the stock market. On September 23, Reuters reported that hedge funds bought US tech and media stocks at the fastest pace in the last 3 months, last week.
With the interest rates falling, industrial spending is expected to revive as the companies can now borrow at lower costs and upgrade their technology and other related products. These high borrowing trends within the businesses are expected to boost the earnings of the tech companies further.
However, as far as the consumer sentiment towards borrowing is concerned, it seems that the market demands more rate cuts before it starts borrowing. We discussed how the borrowing trends are expected to perform in 7 Cheap Beginner Stocks to Invest In. Here’s an excerpt from the article:
“The Federal Reserve has approved the interest rate cut of 50 basis points, which at least for the time being is turning out to be good for the stock market. The interest rate cut also means that businesses and consumers have received immediate relief, but is the public ready yet to jump out of their high inflation rate mindset?
According to a recent report by Reuters, even before the Fed announced a rate cut the financial markets had already begun making credit cheaper for consumers and businesses. Mortgage rates were slightly down, corporate bond yields were also cut, and day-to-day personal and auto loans were also eased. For instance, the average rate a person had to pay for a 30-year fixed home mortgage is 6% after decreasing 2 percentage points from a year ago. Moreover, as per Redfin, a real estate firm, the average median price of houses sold in the middle of September was $3,000 less than the all-time high prices in April and represented a 3% decrease year-over-year. A recent survey shows that while inflation has come down significantly during recent times, the public mood is still distracted due to the past two years of high inflation.”
Turning back to how investors might revisit their idea of S&P being a low-risk investment. This idea was pitched by Bill Nygren, the Chief Investment Officer at Oakmark Funds in a recent CNBC interview. His approach reflects a strategic shift as to how investors might view the S&P 500 and mega-cap stocks in the current market situation. He pointed out that while the index has traditionally been viewed as a diversified index, in reality, it is just a bet on a few large technology companies. Currently, around half of the S&P 500 is dominated by some 25 large tech names, which essentially diminishes its original diversification.
Bill Nygren, emphasized the importance of having a more diversified portfolio beyond just mega-cap stocks. He believes that diversification of the portfolio provides better risk-adjusted returns compared to relying solely on a few big companies. We have also discussed Matt Stucky, Northwestern Mutual Wealth Management’s chief equities portfolio manager, talking about a similar strategy in 13 Most Undervalued Blue Chip Stocks To Buy According To Analysts.
The investment strategy that Nygren is vouching for suggests that the current market scenario where investors are favoring positive momentum stocks can lead to missed opportunities in other undervalued sectors such as financials and energy. He believes that the potential lucrativeness of the Tech sector has overcrowded the space creating opportunity in other sectors.
Why do we care about what hedge funds do? 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 healthcare team discussing strategies for patient advocacy programs.
The Cigna Group (NYSE:CI)
Forward P/E Ratio: 12.49
Earnings Growth This Year: 13.60%
Number of Hedge Fund Holders: 66
The Cigna Group (NYSE:CI) is a leading global health insurance company that focuses on improving healthcare through two main branches: Evernorth Health Services and Cigna Healthcare. The Evernorth Health Services which contributes around 60% to the overall earnings of the company engages in insurances related to Pharmacy Benefits, Specialty Pharmacy, and Care Delivery and Management Solutions.
On the other hand, Cigna Healthcare which accounts for almost 40% of the earnings deals in medical insurance, Behavioral Health Services, Dental and Vision Insurance, and International Coverage. Overall, offers complete health care packages for individuals and businesses.
The fact that Cigna Group (NYSE:CI) has grown its adjusted EPS by more than 13% during the past 10 years, topped with its huge market capitalization of $99.2 billion and cheap valuation makes it a cheap blue chip stock to invest in now.
The company’s Evernorth Health Services has been leading the financial charts. During the second quarter of 2024, overall revenue for the segment was up 30% year-over-year. The robust revenue growth was on the back of its Pharmacy Benefit Services and Specialty and Care Services business outperforming the market. The segments grew their revenue by 41% and 18%, respectively adding around 7% adjusted income to the books.
Moreover, its Cigna Healthcare segment is also gaining more traction driven by growth in the company’s US employer select and middle market segments. The segment which contributes around 40% to the earnings ended the quarter with more than $13 billion in revenues up 3% year-over-year.
This robust growth portfolio stemming from strong performance across the board has uplifted management’s expectations for the company. Cigna Group (NYSE:CI) now expects revenue of at least $235 billion for 2024. Moreover, the stock was held by 66 hedge funds in Q2 2024, with total stakes worth $2.8 billion.
Here is what Davis New York Venture Fund has to say about The Cigna Group (NYSE:CI) in its Q3 2023 investor letter:
“In the attractive healthcare sector, we look beyond the obvious to identify businesses that simultaneously have exposure to this growth industry and also trade at low prices. We’re especially drawn to companies like Cigna Group, whose products or services play a part in helping to mitigate healthcare’s constantly rising costs. The healthcare industry has been a growing part of the U.S. economy for decades. As a result, many companies in this sector trade at high valuations reflecting their robust but well-known reputation for growth. For value-conscious investors like us, investing in healthcare requires looking beyond the obvious to identify businesses that have exposure to this growth industry but which trade at low prices. Furthermore, recognizing that the constantly rising cost of healthcare cannot go on forever, we have been particularly drawn to companies whose products or services play some role in managing or reducing the cost of care. As a result, we have positions in Cigna Group, a well-regarded provider of managed care.
Overall, CI ranks 6th on our list of 7 cheap blue chip stocks to invest in now. While we acknowledge the potential of CI to grow, 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 a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.
