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Why CVS Health Dropped Today

What happened

Shares of CVS Health (NYSE: CVS) fell as much as 5% on Monday. The drop is most likely linked to the news that presidential hopeful Bernie Sanders won Nevada's Democratic caucus on Saturday. Part of the fall is also likely linked to the general market weakness surrounding the spread of COVID-19 (the illness caused by a novel coronavirus).

So what

Traders sold off shares of many health insurance stocks on Monday, including UnitedHealth Group, Centene, Cigna, and Humana. CVS Health was also sold off hard because it purchased health insurance giant Aetna a few years ago.

Image source: Getty Images.

The sell-off is linked to Sen. Bernie Sanders's big Nevada caucus win over the weekend. Sen. Sanders is a big proponent of a single-payer national health insurance system, a major threat to the future of health insurance companies. His big win in Nevada increases the chances that he may one day take over the Oval Office.

It also doesn't help that Monday has been a rough day for investors in general, following fears of a coronavirus outbreak. The Dow, S&P 500, and Nasdaq were all down about 3% in afternoon trading.

Now what

The 2020 election is in full swing, so it's likely that shares of many health insurance stocks (and the stock market in general) are going to swing wildly based on the latest news of the day.

The good news for CVS Health investors is that the bull case for owning the stock doesn't hinge entirely on Aetna's success. With thousands of retail pharmacy stores in operation, CVS Health is likely to remain profitable even if Medicare for All becomes the law of the land.

For 2020, CVS Health's management is guiding for adjusted earnings per share to land between $7.04 and $7.17. This means that shares are trading for less than 10 times expected earnings over the coming year, and offer a 2.8% dividend yield. That might be a cheap enough price tag to attract the attention of value investors.

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Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool recommends CVS Health and UnitedHealth Group. The Motley Fool has a disclosure policy.


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