Analysis: CVS

After you receive this Alert, we will be buying 100 shares of CVS Health (CVS) at roughly $58.35. Following the trade, CVS will represent 4.30% of the portfolio.

In our Wednesday Daily Rundown here, we told you that the next level we would buy CVS was $59. Now that we are no longer restricted from trading this stock (CVS was mentioned on Monday's Mad Money), we will be adding to our position.

Now that the dust has settled in the health insurance stocks, which were viciously sold down this week on an introduced "Medicare-for-All" bill, we believe now is a good time to pick up shares. In our Thursday Alert here, we addressed the declines in the group, noting how the unlikelihood of bipartisan support and the significant amount of funding needed will make this related selloff overblown in time. Remember, CVS Health is much more of a health insurance company now thanks to its acquisition of Aetna. The transaction gave CVS exposure to the same risks as all health insurance companies, but Aetna also provided the enterprise with a high multiple, durable business that was beating/meeting expectations before it was acquired. And at about one-third of total adjusted operating income, Aetna represents a huge part of the overall company.

We also see value in the shares down here because all the 2019 headwinds and challenges facing the company this year have gotten priced in. The headwinds are well understood at this point and are likely overshadowing the company's return to growth in 2020. While the real drag right now in the company's operating income guidance relates to long-term care, the write-off and step up investment should stabilize the issues and mark a bottom in this business. Once stabilized, management will have some optionality here to unlock value by selling Omnicare.

So with a price-to-earnings multiple of just 8.5x 2019 expected earnings and a dividend yield that sits at about 3.4%, we continue to see value in the stock. We look forward to a broader rollout of the company's new HealthHub store concept, which will change the way consumers approach health, as well as progress in the Aetna integration, where sentiment has gotten so poor that management can only over-deliver at this point.

For more information on our trading restrictions, please see here.