The perennial quest of investors – be they the institutional portfolio geniuses, or the self-motivated individual investors — is to find the “perfect” stock, the one that delivers not only attractive gains but enviably excellent returns.
In other words, a stock that has everything, including a combined value-and-growth profile, defense-to-offense characteristics, and an earnings-obsessive and shareholder-centric priority.
That, of course, sounds like an impossible dream. However, that has rarely discouraged many from trying to search for the perfect stock – and they do exist — stocks that have the potential of becoming all-time market stars.
There are a number of examples of great market winners, topped by Apple which has rocketed in just a few years to become the market’s largest stock in market value. And despite its recent price slippage, there is little doubt that Apple’s market leadership will continue to grow for some time.
Apple was on top of my list of favored stocks in 2000 when I first wrote about it, then trading at just $15 a share. The stock’s incredible ascent since then, to more than $550 is one of Wall Street’s phenomenal stories. It hit an all-time high of $700 a share before its recent slippage to the mid-$500 level.
There aren’t many stocks like Apple, but one that I believe will be a top performer in 2013 is CVS Caremark (CVS), which possesses many of Apple’s credentials when it started to separate from the pack, and lead.
While Apple satisfies consumers’ appetite for sleek, whiz tech devices with its iPhones, iPads, iPods and novel Mac PCs, CVS meets the demand for both discretionary and non-discretionary products – plus other basic items and services, mainly medicines and health care support.
That’s the reason why CVS’ stock has been on a steady uptrend, the pace of which I am confident will only quicken.
That indicates CVS will be around for as long people have a need for these essential as well as discretionary products and services.
CVS, the largest pharmacy and health care provider in the U.S., operates a chain of about 7,300 drug stores in 41 states and Puerto Rico. Its stock, now trading at $46 a share, has doubled since 2008. But don’t think the stock has hit its peak. Analysts and key investors in the stock believe CVS is on its way to $60, or more, in 2013. Trading at 14 times estimated 2013 earnings estimates, the stock is way undervalued, considering that the stock’s 10-year average price-earnings ratio is 22.4. Over the longer term, some pros think the stock could again double in price from current levels.
CVS’ drug stores sell a wide range of products — apart from the trove of prescription and over-the-counter drugs it provides — such as beauty products and cosmetics, films and photo services, convenient foods including beverages and liquor, and sundry products for day-to-day living.
The company’s drug-stores, which account for about 50% of sales, fills more than one billion prescriptions a year, an astounding number that represents some 20% of total U.S. retail pharmacy sales, quite an impressive number, indeed.
Analysts continue to be optimistic about the company’s strong earnings growth, robust cash flow, and commitment to enhance shareholder value. Earnings in the second quarter of 2012 jumped 25% on a sales increase of 16%. On that alone, it seems CVS’ drug-store business is on solid footing. CVS has been on a growth pathway over the years through acquisitions.
CVS’ other business, the pharmacy benefit management services, has also been a source of good tidings, posting operating income growth of 19%. This business provides a full range of pharmacy benefit management services, such as mail-order prescriptions, Medicare Part D assistance, and discounted drug purchase agreements with various employers and corporations.
For 2013, S&P Capital IQ projects total CVS sales to rise 4%, to $129 billion, from an estimated $124.1 billion in 2012, and way up from 2011’s $107.1 billion. S&P forecasts operating profits to rise 12%, to $3.81 a share, from an estimated 2012 earnings of $3.41. In 2011, CVS reported earnings of $2.59 a share.
Obviously, the biggest growth factors for CVS is demographics, the aging population, and the increasing supply and demand for generics.
“CVS is well positioned to benefit from market share gains, increased customer drug utilization from an aging population, and from a significant increase in generic drug offerings,” all of which add to margin expansion, says Joseph Agnese, analyst at S&P Capital IQ.
Also high on CVS as an investment for the long term , is Joseph J. Costanza, analyst at investment research firm Value Line. The stock is “timely and offers solid three-to-five year appreciation potential, he says. And, he adds, shareholders “stand to benefit from CVS’ healthy finances and cash flow.”
In my book, “Seven Commandment’s of Stock Investing,” published by FT Press on Jan. 14, 2008, I listed seven stocks that I believe would be the big winners over the following seven years. Apple and CVS were among my top-seven recommended stocks. Apple was then trading at $199 a share and CVS was at $40. Apple has since skyrocketed to $561 a share and CVS has climbed to $45. Over the next 12 months, CVS watchers see the stock going to as high as $60 a share – or more.