Is CVS Health Stock a Millionaire Maker? | The Motley Fool (2024)

If you want to maximize your odds for a good return in the stock market, it's important to look for deep value buys. These are stocks that may be struggling right now but that have a lot of upside in the long run. And because they're struggling, you can get them at a discount, potentially setting yourself up for better returns down the road.

CVS Health (CVS -1.33%) is a stock that potentially ticks off those checkboxes. It's down 24% this year and has been a brutal recent buy, especially as the stock market reached new heights and other stocks generated massive returns. But could CVS Health, with a much more modest valuation than it had at the beginning of the year, be a millionaire-making investment in the long run?

CVS has a lot of growth potential in the long run

A big reason I'm bullish on the company's future is that the need for healthcare is only going to rise. As the number of seniors grows, so too will the number of diseases which are going to require ongoing care, from cardiovascular diseases to hypertension to diabetes. Demand will go up for healthcare services.

Investors are bearish on CVS this year because Medicare Advantage rates aren't going up as much as expected, and medical costs are rising. But those are, in essence, short-term issues. If you're investing for the long run, they aren't problems that should get in the way of deciding whether CVS is a good buy.

What's promising is that the company has become a behemoth in the healthcare industry. It has retail pharmacies, a pharmacy benefits business, and a health insurance business, and it offers home health solutions as well. CVS is one of the most diversified healthcare stocks you can invest in today.

In each of the past four years, it has also generated a free cash flow of at least $10 billion. That gives the business plenty of cash not just to pay its dividend (which cost it $3.2 billion over the last 12 months) but also to continue investing in its operations and growing its business.

CVS' stock is cheap for what it offers

A big incentive for investing in CVS Health today is that you can get it at a discount, with those near-term worries weighing down the stock. And at 11 times its trailing earnings, it looks dirt cheap; the average stock on the S&P 500 trades at a price-to-earnings (P/E) multiple of 23. It's even trading around its book value.

At this kind of a reduced valuation you might expect a broken, unprofitable business. Instead, you can get an excellent stock in a company which has achieved impressive top- and bottom-line growth over the years. While there have been fluctuations along the way, the overall trajectory has been solid for CVS.

CVS Net Income (Annual) data by YCharts.

What kind of return would you need to reach $1 million?

I have little doubt that you can get a great return from investing in CVS Health today. But the big question is how much of a return you can expect, and whether it could be enough to make you a millionaire.

Given its low valuation, I think there's potential for CVS Health to be a market-beating investment in the long run. If the S&P 500's long-run average is 10% per year, I would expect CVS to at least be able to match the index's average annual gains in the long run. When you include its 4% dividend yield into that equation, the stock might generate 14% total returns per year. If it could do that for a period of 25 years, it would make this a potential 26-bagger. At that rate, you'd need to invest approximately $38,500 into the stock today.

That might be a bit much for many investors. But if the stock could average that kind of return for 30 years, then you'd only need to invest a little over $19,600 today to reach the $1 million mark.

Is CVS Health stock a buy?

It's easy to look at both CVS Health's recent drop, and the 22% decline over the past decade, and take them as proof that the stock is a lost cause. But if not for the pandemic, inflation, and rising interest rates, its returns would undeniably look much better -- the past few years have been difficult for many healthcare stocks, not just CVS.

With a promising future and strong financials, this struggling stock could potentially generate much greater returns in the long run. I think there's a chance for CVS Health to be a millionaire-making investment if you buy and hold for the long haul.