Some businesses are hurt more than others by pandemics and recessions. One company with some resistance to both is pharmacy chain CVS Health (NYSE: CVS). Yes, the COVID-19 pandemic has reduced foot traffic in its stores and hurt in-store clinic revenue. But the pandemic is not likely to be a long-term issue, and CVS has responded nimbly. Indeed, it was recently operating more than 1,800 COVID-19 testing sites nationally – and it’s offering virtual doctor visits with its MinuteClinic “E-Clinic” program.
One of the steadiest tailwinds for CVS Health is that America’s population is aging. As life expectancies lengthen and baby boomers hit retirement, reliance on prescription medicines to improve overall quality of life should increase. Since pharmacy sales generate about three-quarters of CVS revenue, an aging population with easy access to prescription medicines is a good thing.
What’s more, CVS Health has been pushing the personalized medicine narrative at many of its locations. The company has plans to open about 1,500 of its HealthHUB clinics across the country by the end of next year, offering services that include management of chronic conditions like diabetes.
With a recent forward-looking price-to-earnings (P/E) ratio in the single digits, and a dividend yield topping 3.3%, CVS Health deserves consideration for long-term portfolios. (The Motley Fool has recommended CVS Health.)
Ask the Fool
Q. I saw that ExxonMobil was removed from the Dow Jones Industrial Average. What happened? – G.V., Tulsa, Oklahoma
A. Many don’t realize this, but the Dow Jones Industrial Average (“the Dow”) is an index of only 30 companies. Every few years, to better reflect our diversified economy, some components of the Dow are ejected to make room for new ones. The latest move replaces ExxonMobil, Pfizer and Raytheon Technologies with Amgen, Honeywell and Salesforce. These changes reduce the index’s exposure to energy and traditional pharmaceutical companies, while increasing representation of technology and biotechnology.
In 2018, General Electric was shown the door to make way for Walgreens Boots Alliance, while Apple replaced AT&T in the index in 2015. The last major shakeup occurred in 2013, when Alcoa, Bank of America and Hewlett-Packard departed, making room for Goldman Sachs, Nike and Visa.
Q. What’s deflation? – L.U., Federal Way, Washington
A. We all know about inflation, which is the steady rise of prices over time. As you might have suspected, deflation is when prices fall. That might seem like purely a good thing, because falling prices mean you can buy more with your income.
Deflation isn’t always good, though, as it often accompanies a recession and/or a struggling economy. It can be part of a cycle where many people are out of work: They postpone purchases because they’ve lost income, then companies lower production because of reduced demand, then even more people lose jobs. In a deflationary spiral, the economy contracts rather than grows. Meanwhile, businesses (and people) earning less money can have trouble paying down their debts.
Deflation can be countered by lowering interest rates, but rates can only fall so far.
My dumbest investment
My dumbest investment was accidentally selling my shares of Shopify at $38, when I had intended to buy more. I didn’t buy them back to avoid paying an additional transaction fee. Lessons learned: Pay attention when submitting orders – and price is what you pay, value is what you get. – S., online
The Fool responds: Shopify, which offers a widely used e-commerce platform, has been on quite a tear in the past few years. It began 2016 at about $25 per share, and began the next four years at about $43, $102, $134 and $404, respectively. It has recently been trading about $900 per share. Clearly, in retrospect, it was a blunder not to buy (and hold) more shares at $38. But at the time, you didn’t know just how much it would soar. Then, as now, you could have asked yourself questions such as: Is this a high-quality, healthy company, with little debt and great growth prospects? Is it attractively priced, not overvalued?
Opinions are mixed on the stock’s value these days, as it has run up so much. Bulls expect it to keep growing and rising, but bears think it’s overvalued and might pull back. Note that many big brokerages now offer commission-free trading – which could keep you from making future investment decisions based on transaction fees. You can learn more about good brokerages at our sister site, TheAscent.com.
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