Will CVS Health Stock Recover To Its Pre-Inflation Shock Highs Of $110?

CVS Health stock (NYSE: CVS) currently trades at $66 per share, about 12% lower than the level seen in March 2021, and it can see higher levels over time. CVS stock was trading at around $93 in early June 2022, just before the Fed started increasing rates, and is now nearly 30% below that level, compared to 19% gains for the S&P 500 during this period. This underperformance of CVS stock can be attributed to its rating downgrade in its most extensive health insurance plan for Medicare patients, with 1.9 million members. The reduced rating implies the plan’s ineligibility for performance-based bonus payments from the government in 2024. Also, investors still have concerns about a potential recession despite a steady decline in the inflation rate in response to the Fed’s aggressive rate hike plan.

We note that CVS stock has had a Sharpe Ratio of 0.0 since early 2017, much lower than 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.3 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.