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CHART SOURCES: BLOOMBERG; S&P GLOBAL NOTE: FORWARD P/E BASED ON NEXT FISCAL YEAR-END EARNINGS.
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FORTUNE.COM // JUNE.1.19
CVS HEALTH (NO. 8)
CVS HEALTH REPORTED disappointing fourth-
quarter earnings earlier this year in the wake
of its massive $70 billion acquisition of health
insurer Aetna. (See our feature story in this is-
sue.) But the drugstore chain rebounded nicely
in the first quarter of 2019, reporting a 42%
jump in profits. The company is among the
more resilient players in what has been a chal-
lenging retail market at large. With the merger,
CVS gains exposure to a health care sector that
some analysts are overweight on—despite an
upcoming election year in which some Demo-
cratic candidates are floating a Medicare for
All platform that would surely cause disruption
within that industry.
“You don’t know what drug is going to be
the next blockbuster, but you know that it’s
going to be sold through CVS,” points out
Brendan Connaughton, founder and man-
aging director of wealth management firm
Catalyst Private Wealth.
With CVS’s stock trading at a forward P/E
ratio of 8 and its price down considerably
from its 52-week high last reached in Novem-
ber, there could be real upside to be found
for investors.
True, no one knows how long this (already
prolonged) U.S. economic expansion will last.
But for now, it looks as if investors who choose
wisely may enjoy a few more Glory Days.INVEST
LENNAR (NO. 154)
WHILE HOMEBUILDING is notoriously volatile—
and indeed, homebuilder stocks had a brutal
2018—the Federal Reserve’s newly neutral
interest rate stance could prove a boon for
the likes of Lennar. Wholly focused on the
U.S. market, Lennar is one of this year’s
biggest “movers” on the Fortune 500, jump-
ing up the list by 76 spots. The company is
trading at a forward P/E ratio of 9 and is also
below its 52-week high set last summer.
“I think the homebuilders are very attrac-
tive right now,” says Andrew Slimmon, man-
aging director at Morgan Stanley Investment
Management. “They got absolutely crushed
last year. And if you look at the history of
homebuilders, when these stocks come off the
mat, they don’t go up 20% or 30%—they go
up a lot more.”
But Slimmon adds this industry in partic-
ular requires investors to fight their natural
instincts—and have the patience to wait for
bets to play out. The homebuilding industry
is “very cyclical,” and investors need to get
ahead of the curve.
“You cannot wait for the fundamentals for
this industry to turn,” according to Slimmon.
“You have to be willing to buy in when it’s not
clear that things have turned and be willing
to take your chips off the table when they’re
looking good.”
-40
-20
0
20
40
60
80%
2015 2016 2017 2018 2019
S&P 500 INDEX
GROWTH OF LENNAR
STOCK TOTAL RETURN
SINCE JAN. 1, 2015
19.5%
S&P 500
FORWARD P/E 9x 17x-40
-20
0
20
40
60
80%
2015 2016 2017 2018 2019
S&P 500 INDEX
GROWTH OF CVS HEALTH
STOCK TOTAL RETURN
SINCE JAN. 1, 2015
–35.1%
S&P 500
FORWARD P/E 8x 17x“ You don’t
know what
drug is
going to
be the next
blockbuster,
but you
know that
it ’s going
to be sold
through
cvs,” says an
analyst.