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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CVS's Conflicted Position
- CVS's stock hasn't performed well, despite a good decade for stocks overall.
- The Federal Trade Commission (FTC) issued a report on Pharmacy Benefit Managers (PBMs), like CVS's Caremark, potentially benefiting CVS but also creating internal conflict as a drugstore chain.
Pharma-Filled Five
- CVS is among the top five U.S. companies by revenue, alongside Walmart, Amazon, UnitedHealth, and Apple.
- All these companies, except Apple, sell prescription drugs, a big business for UnitedHealth and CVS, but a side hustle for Walmart and Amazon.
Contrasting Performances
- CVS and UnitedHealth have comparable revenues, yet their financial performances differ drastically.
- UnitedHealth's stock has returned over 700% in the past decade, while CVS's has returned roughly zero.