Please ensure Javascript is enabled for purposes of website accessibility

Why CVS Health Stock Is Sinking Today

By Keith Speights - Mar 16, 2020 at 12:01PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Mounting coronavirus worries combined with the Fed's rate cut caused the healthcare giant's shares to tumble.

What happened

Shares of CVS Health (CVS -1.50%) were sinking 6.3% as of 11:40 a.m. EDT on Monday after falling as much as 11.1% earlier in the day. The healthcare giant was affected by the overall stock market sell-off caused by escalating worries about the novel coronavirus pandemic and the Federal Reserve Board's action to cut interest rates to 0% and inject $700 billion into the U.S. economy.

So what

Although some healthcare stocks shouldn't be affected much by the COVID-19 outbreak, CVS Health isn't one of them. The company's retail business is likely to be hurt as consumers stay home to follow the social distancing recommendations from governmental authorities. CVS Health also owns Aetna, which could potentially experience higher medical costs if a large number of its members require hospitalization due to COVID-19.

CVS pharmacy store

Image source: CVS Health.

But shouldn't the Fed's move to reduce interest rates to 0% and embark on another round of quantitative easing (buying Treasury securities and other securities to try to boost the economy) help companies like CVS Health? Yes, but the fact that the Fed has taken such drastic action so quickly only highlighted concerns about the economic impact of the coronavirus.

Now what

While the news seems to get bleaker by the day, long-term investors should have nothing to worry about. CVS Health will continue to generate significant cash flow from its core pharmacy business and Aetna health insurance business even with a negative impact on its retail sales and medical costs. The company is positioned to survive the current downturn and thrive once the crisis is over. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

CVS Health Corporation Stock Quote
CVS Health Corporation
CVS
$92.53 (-1.50%) $-1.41

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.