Michael Burry made a fortune by betting against investments. Burry has taken highly publicized short positions on Tesla stock. He bets against the Nasdaq-100 and the S&P 500 earlier this year.
But the well-known investor doesn't always bet on the market. He's bullish on a few stocks. Here's the Michael Burry stock that could be the biggest winner over the next five years, in my opinion.
You can easily find all the stocks that Burry's Scion assets owns by looking at the company's 13-F filings to the U.S. Securities and Exchange Commission. As of June 30, 2023, Scion's holdings include nearly 30 stocks, a handful of exchange-traded funds, and put options for a couple of S&P 500 and Nasdaq-100 ETFs.
Don't expect to see any of the widely followed, highly profitable stocks of 2023 on the list. There's no Nvidia - and definitely no Tesla - shares in Burry's portfolio.
But one especially stands out to me : CVS Health. By 2022, shares of pharmacy giant have dropped more than 35%, the largest increase in the company's history. CVS offers numerous advantages, but there are other reasons to consider it.
The first one will not come as a shock. Its shares currently trade at a forward-price-to-earnings ratio of just 8.1x. I don't think that this low valuation is reflected in the company's underlying business strength and growth prospects.
CVS Health's revenue rose 10 percent year-on-year in its most recent quarter. So, adjusted earnings fell from the prior year period. But that was mainly due to COVID-19's impact. Medical costs for CVS's Aetna health insurance business were up due to higher utilization as COVID fears waned. By fewer COVID vaccinations and tests, the company's retail pharmacy sector was significantly impacted. However, these negative year-over-year comparisons are only temporary.
I believe that the aging U.S. population presents a significant long-term tailwind for CVS Health. Its Aetna business should benefit from increasing membership in its Medicare Advantage and Medicare Part D plans. As prescription drug usage grows, the company's retail pharmacies and Caremark pharmacy benefits management unit should be able to generate increased revenue.
CVS Health is also advancing into new fields to take advantage of this significant opportunity. The firm acquired Signify Health and Oak Street Health. Burry likes CVS Health's dividend, too. The dividend is currently yielding nearly 3.5%. After a hike in 2018 due to the acquisition of Aetna, the company has increased its dividend for two consecutive years.
CVS Health has one potential wild card that could get into CVS Health's system. The Congressional scrutiny over how PBMs operate has increased. In July 2023, Sens. Tom Carper and Chuck Grassley introduced legislation that would allow the federal government to more closely regulate PBMs.
It remains to be seen whether the bill will get the traction it needs. But PBMs don't exactly enjoy a lot of popularity on Capitol Hill these days. CVS Health's PBM business, which generates more than half of its revenue last year, is a problem.
CVS Health's PBM unit is still in good shape, winning close to 60% of national employers who changed PBMs for the upcoming year as of early August 2023. CVS Health's pharmacy services division, David Joyner, said in a statement that the company remains 'confident in our long-range growth outlook' for the PBM business.
I am not foreseeing gloom and doom on this front. Burry, who owns 100,000 shares of CVS Health stock, is not both. My hunch is that CVS will be a big winner with CVS despite the possible bumpy path ahead for PBMs.