Billionaire Hedge Fund Managers Show Confidence in CVS Health Amid Stock Plunge
Despite a challenging year for CVS Health (CVS 0.11%), some hedge fund managers are investing heavily in the healthcare giant. While the stock price has dropped significantly, billionaires like John Overdeck, David Siegel, Paul Tudor Jones II, and Cliff Asness see value in CVS Health and are increasing their stakes in the company.
John Overdeck and David Siegel, co-founders of Two Sigma Investments, have raised their position in CVS Health by nearly eight times in the first quarter of 2023. Their stake now stands at over $400 million. Paul Tudor Jones II, founder of Tudor Investment Corporation, increased his holding in CVS Health by more than 2.6 times, valued at approximately $37.6 million. Cliff Asness, the CEO of AQR Capital Management, also added 10.7% to his stake in CVS Health, totaling more than $350 million.
One of the main reasons behind these billionaire investors’ interest in CVS Health is the stock’s attractive valuation. Currently, CVS Health trades at a forward price-to-earnings ratio of under 8.7x, while the S&P 500’s forward earnings multiple is 19.7x. The discounted valuation is a result of CVS Health’s reduced full-year earnings guidance announcement in May 2023. The company revised its earnings outlook due to several factors, including changes in intersegment operating income eliminations, recent acquisitions, and headwinds related to Medicaid’s 340B drug pricing program.
However, these hedge fund managers believe that CVS Health can overcome these challenges. They are likely considering the increasing demand for health insurance and prescription drugs driven by the growing elderly population in the United States.
Although billionaire hedge fund managers investing in CVS Health does not automatically indicate that individual investors should follow suit, two types of investors might want to consider the stock. Firstly, value investors will appreciate CVS Health’s price, particularly in a market that is priced at a premium. Secondly, income investors might be interested in CVS Health due to its current dividend yield, which exceeds 3.2%. The company appears to be in a solid financial position to sustain its dividend payments.
On the other hand, growth investors may find other stocks more compelling than CVS Health. The company is not expected to deliver significant revenue and earnings growth in the coming years.
In conclusion, while CVS Health faces challenges and its stock has experienced a considerable decline, billionaire hedge fund managers see potential in the company. Their increased investments highlight the discounted valuation of the stock and the long-term growth opportunity in the healthcare industry. Investors should carefully consider their investment strategies and goals before making any decisions regarding CVS Health.
