"Regardless of how you analyze the company, CVS Caremark (NYSE: ) stands out," says Chuck Carlson.
In The DRIP Investor, he explains, "Our Quadrix stock-rating system ranks more than 4,000 stocks based on more than 100 different variables. CVS scores better than 90% of the stocks in the Quadrix universe."
"CVS’s Sector score — that is, a score devised by evaluating the metrics that have the most in?uence over performance in that particular sector — is also impressive at 95 out of a possible 100.
"The good news is that investors can buy this stock at what appears to be an attractive valuation at just 11 times the 2010 consensus earnings of $3 per share.
"Although healthcare-related stocks have been affected by uncertainties surrounding health-care reform, CVS stands to be one of the winners should more people obtain insurance coverage. The stock represents a quality buy at current levels.
"CVS operates two segments. Retail drugstores generated 53% of sales in 2008, while pharmacy-bene?t management (PBM) accounted for the rest.
"Prescription drugs account for about two-thirds of retail sales, with the balance coming from general merchandise (15%), over-the-counter drugs and personal care (13%), and beauty/cosmetics (4%).
"The PBM unit contracts with employers, insurance companies, and other sponsors of health-benefit plans to administer drug coverage for groups.
"Typically, a PBM will buy drugs in bulk at a discount and pass on some of the savings to patients in its bene? t plans. Caremark entered the PBM business via its $26.5 billion acquisition of Caremark in 2007.
"Melding a PBM operation with a drugstore chain provides opportunities for cross-marketing services. CVS should be one of the few companies posting higher pershare pro? ts in 2009.
"The consensus estimate for 2009 is $2.60, up from $2.44 per share in 2008. That estimate could prove conservative, as CVS has beaten the consensus earnings estimate in each of the last two quarters.
"CVS trades at a P-E ratio that is on the low side relative to its historical range. Pro?t growth should accelerate in 2010, and long-term growth prospects are excellent. The stock, down sharply from its 2008 high of more than $44 per share, represents one of the better buys in the market.
"DRIP investors take note that CVS offers a direct-purchase plan whereby any investor may buy the ?rst share and every share directly from the company."
