Why I Am Now Interested In CVS Health Corp (CVS)

To further clarify this distinction, I also offer a similar graph on the S&P 500 plotting earnings and dividends over the timeframe 2000-2015. Not only have the S&P 500’s earnings grown at less than half the rate of CVS’s earnings, the overall market’s earnings has also been significantly more cyclical. The market’s dividend record is a little better, but dividends were cut in 2009.  When stacked up against the average company, I consider CVS a great business.

As I indicated in the introduction, in addition to identifying a great business, I also want to see it at an attractive price. On these next two graphs I bring in monthly closing stock prices for both CVS and the S&P 500. It’s important that the reader recognizes that both CVS and the S&P 500 were overvalued in 2000. For those that recall, calendar year 2000 represented the coming to the end of what was dubbed the “irrational exuberant period” in the stock market. Consequently, I would’ve had no interest in investing in either at this time.

Furthermore, the reader should also note that both of these entities were also overvalued at the end of calendar year 2015. Consequently, I had no interest in investing in either of these entities during calendar year 2015. CVS continued to perform strongly on an operating basis, but stock price was so disconnected from fair value (the orange line on the graph) that I had no interest in spite of its impeccable operating record.