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Why CVS Is My Top Stock Pick For 2021

Mar. 09, 2021 8:00 AM ETCVS Health Corporation (CVS)95 Comments
Logan Kane profile picture
Logan Kane


  • With the world focused on the NASDAQ, CVS flies under the radar. I believe CVS stock is one of the most compelling opportunities in the market today.
  • CVS trades for a bargain price of 7x free cash flow, with positive catalysts coming to increase their earning power.
  • The market is not giving CVS enough credit for its strong cash flow and ability to effect big dividend increases and buybacks once they finish paying down debt.
  • CVS's risk profile is such that if I lose, I'll likely lose small, but if I win, I'll win big.

CVS Coupon Matchups

"The stock market is filled with individuals who know the price of everything, but the value of nothing." -Phil Fisher

CVS Health (NYSE:CVS) is a growth business trading for a value price. While traders are focused on the reopening vs. stay-at-home trade, companies like CVS totally fly under the radar with strong cash flow, low valuations, and improving fundamentals. At today's price, I believe CVS stock is a low-risk, asymmetric upside opportunity.

If you take time to look at CVS's financial statements, I think you'd find it hard to disagree. To this point, I'm naming CVS as my top stock pick of 2021. I don't get everything right all of the time, but my top pick for 2019 was Micron (MU), and my top pick for 2020 was PayPal (PYPL). Both picks crushed the market and I'd like to go 3/3 here in 2021 with CVS.

CVS Health Is a Cash Flow Machine

ChartData by YCharts

This graph is CVS stock's price to free cash flow. Back in 2015, CVS traded for over 25x free cash flow. Now, the market offers you the chance to buy a more diversified business for ~7x free cash flow, which stands at over $10 per share and rising. When you dig into the financials, CVS's free cash flow is a good deal higher than their earnings. The difference reconciles from after-tax net interest cost and non-cash depreciation and amortization. The combination of non-cash expenses in excess of capital expenditures and debt paydown means that CVS's earning power is understated by its reported net income. As the interest expense decreases with their management's focus on paying down debt, the cash flow generating power of CVS should come into full view.

As an aside, it's common for companies' free cash flow to be a good deal lower than

This article was written by

Logan Kane profile picture
Author and entrepreneur. My articles typically cover macroeconomic trends, portfolio strategy, value investing, and behavioral finance. I like to profit from the biases and constraints of other investors. Paywalled articles are available along with 1,000+ other authors by subscribing to Seeking Alpha Premium.You can read some more of my work for free here on my Substack.

Analyst’s Disclosure: I am/we are long CVS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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