Barron's Streetwise
Should CVS Split Up? Plus, the Case for Small-Caps.
Oct 4, 2024
Marlena Lee, Global Head of Investment Solutions at Dimensional Fund Advisors, shares her insights on the investment landscape. She breaks down CVS's struggles amidst activist investor pressure and competitive dynamics. The conversation dives deep into the benefits of small-cap stocks for diversification and how traditional indexing compares to active management strategies. Marlena also emphasizes the importance of understanding investment costs beyond just expense ratios, highlighting real-world examples to illustrate her points.
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Quick takeaways
- CVS Health is struggling with poor market performance and heavy debt, leading to discussions about its financial strategy and potential restructuring.
- Investors should consider small-cap stocks for better diversification and potential performance gains, contrasting their opportunities with large-cap companies' inefficiencies.
Deep dives
Challenges Facing CVS Health
CVS Health is currently navigating significant financial challenges, with its stock price stagnating despite substantial revenues. Over the past decade, the company's stock has returned roughly zero, a stark contrast to its competitor UnitedHealth, whose stock has surged over 700%. Despite CVS's substantial revenue projections, its market value is drastically lower than UnitedHealth’s, leading to questions about financial strategy and structure. Factors contributing to this issue include the competitive landscape of pharmacy benefit managers and the debt burden of $62 billion, which complicates efforts to enhance profitability and market performance.
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