To The Moon

Investor sentiment has improved this year on expectations of less-aggressive interest rate hikes by the Federal Reserve to tame inflation. However, the ongoing macro uncertainty continues to create confusion about which sectors or companies to invest in. In the wake of a possible economic downturn, investing inhealthcare stockscould be a good idea. Healthcare companies are not completely immune to a recession or macro pressures. However, they are known to escape sharp declines during recessions due to the essential nature of the business. Leading pharmacy chainCVS Health$CVS Health(CVS)$ has been in the news for two large acquisitions announced over recent months — the Signify Health$Signify Health, Inc.(SGFY)$ deal announced in September 2022 and the potential takeover of Oak Street Health$Oak Street Health(OSH)$ that was announced last week. Both deals will likely bolster the company’s position in the primary healthcare space. Through the $10.6 billion acquisition of Oak Street Health, CVS could gain access to about 600 primary care providers and 169 medical centers across 21 states. The deal comes at a time when CVS’ rivals are aggressively expanding their presence in the primary care market.Walgreen$Walgreens Boots Alliance(WBA)$ -backed VillageMD acquired Summit Health-CityMD for $8.9 billion, while e-commerce giant Amazon$Amazon.com(AMZN)$ is acquiring One Medical for $3.9 billion. Mizuho Securities analyst Ann Hynes expects the Oak Street Health and Signify acquisitions to help CVS generate the “+2% of EPS contribution embedded in long-term EPS targets.” Commenting on the Oak Street Health deal, Hynes said, “The main areas with expected synergy opportunities include OSH patient growth through CVS channels, better retention of Aetna MA [Medicare Advantage] members, and PBM [Pharmacy Benefit Manager] and pharmacy collaboration opportunities.” While Hynes believes the deal is expensive, she acknowledges that it is in line with the company’s long-term growth strategy for its Health Services business. Hynes reiterated a “buy” rating on CVS stock with a price target of $120. All in all, CVS earns the Street’s “strong buy” consensus rating, backed by 10 buys and two holds. The averageCVS stock price targetof $114.75 implies about 28% upside from current levels. Healthcare stocks Abbott Labs$Abbott Laboratories(ABT)$ , Eli Lilly$Eli Lilly and(LLY)$ and CVS Health offer attractive long-term growth potential. Currently, Wall Street is very bullish on CVS and estimates higher upside potential in the stock. CVS expects 2023 adjusted EPS in the range of $8.70 to $8.90, reflecting growth of about 5% to 8%. Based on its strategic acquisitions and other growth initiatives, the company is targeting adjusted EPS of nearly $9 in 2024 and $10 in 2025.