In this article, we will look at the 7 Cheap Reliable Stocks to Invest in. Let’s look at where CVS Health Corporation (CVS) stands against other cheap reliable stocks.
Overview of the American Retail Segment
Retail sales in the United States rose unexpectedly in August. According to a report by the Commerce Department, retail sales rose considerably faster than analysts’ estimates from July. They increased 2.1% year-over-year in August, with online sales rising 1.4% after falling 0.4% in July. In addition, gasoline station sales fell by 1.2%, reflecting lower pump prices. When combined with a decreased unemployment rate, this retail landscape caused the Federal Reserve to issue a half-percentage-point interest rate cut.
While auto dealerships experienced a decline in receipts, strength in online purchases balanced the level, suggesting a solid footing for the economy through the most part of Q3 2024. After the data, the Atlanta Fed raised the Q3 2024 GDP growth estimate from 2.5% to 3.0% annualized rate estimate. The economy grew at 3.0% in Q2.
Holiday Outlook For US Retailers
Sales in the holiday season typically account for more than half of the annual revenue of US retailers. According to estimates by the Boston Consulting Group, US retailers will likely see a “measured” holiday cheer in the upcoming holiday season. Although signs like cooling inflation point to strong consumer spending, several other factors are likely to take a toll on overall spending.
According to a Challenger, Gray & Christmas report, US retailers are likely to hire fewer holiday workers this holiday season compared to 2023. A softer labor market and uncertain consumer spending trends are the primary drivers behind this trend. In addition, a Deloitte forecast revealed that US holiday sales will likely grow at their slowest rate in six years. Depleting savings is making shoppers more conscious this holiday season.
The 2024 Holiday Outlook Survey by Boston Consulting Group shows that while 28% of consumers plan to increase their spending compared to 2023, 27% plan to decrease it. 45% plan to spend the same amount. There are reasons behind these split trends. Real consumption has continued to increase post-pandemic, with household incomes and balance sheets getting strong in American households. In spite of these positive growth indicators, global military conflicts, ongoing geopolitical tensions, and the upcoming 2024 presidential elections are painting an environment of split attention for consumers.
Despite its recent cooling, inflation has resulted in high consumer staple prices, restricting budgets for holiday shoppers. These trends are also leading to increased inclination towards deal-seeking and intentional channel selection.
Our Methodology
We first consulted stock screeners from Finviz and Yahoo Finance, along with online rankings, to create an initial list of 15 publicly traded retail companies with a forward P/E ratios of less than 23 (the broader market is trading at a forward P/E of 23, as per data from WSJ). From this list, we selected the 7 stocks with the highest number of hedge funds holders as of Q2 2024, and used that as our ranking metric.
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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
7 Cheap Reliable Stocks to Invest In
CVS Health Corporation (NYSE:CVS)
Forward P/E: 8.97
Analysts’ Upside Potential: 6.58%
Number of Hedge Fund Holders: 60
CVS (NYSE:CVS) is a retailer that operates in four segments: health care benefits, health services, pharmacy & consumer wellness, and corporate/other. Its healthcare benefits segment offers various voluntary, traditional, and consumer-directed health insurance products and related services. These include medical, pharmacy, medical management capabilities, dental and behavioral health plans, Medicare Advantage, Medicaid health care management services, and Medicare supplement plans.
The Health Services segment specializes in a complete range of pharmacy benefit management solutions and delivers healthcare services in its medical clinics, at home, and virtually, offering provider enablement solutions. In contrast, the Pharmacy & Consumer Wellness segment dispenses prescriptions in retail pharmacies. It also provides diagnostic testing, pharmacy patient care programs, and vaccination administration.
All standalone stores operated by CVS (NYSE:CVS) across its national footprint are profitable, reflecting its strong operational model, business leadership, and exceptional customer service. Total revenue reached more than $91 billion in the first half of 2024, along with $8 billion in operating cash flow. Continuing its growth model, CVS expects membership growth in its commercial business in 2025, primarily driven by new business wins and strong retention.
CVS has identified a multi-year opportunity to save $2 billion. This initiative will be driven by optimizing and streamlining its processes and operations, accelerating the use of artificial intelligence and automation across its operations, and continuing to rationalize its business portfolio. The savings will allow the company to invest in new opportunities and businesses, further driving growth and profitability.
The stock currently trades at a forward P/E of 8.97 at a 58.28% discount to its sector. Its median price target of $58.64 implies an upside of 6.58% from current levels.
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”.
Overall, CVS ranks 1st among the cheap reliable stocks to invest in. While we acknowledge the potential of 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 more promising than CVS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.