2 Stocks That Are Much Cheaper Than They Look

AbbVie and CVS Health screen as expensive on trailing P/E at more than 100 and 42, respectively, but both look materially cheaper on forward earnings at 15 and 13. The distortion comes from non-recurring charges: AbbVie took a $2.7 billion acquired in-process R&D charge, while CVS recorded a $5.7 billion goodwill impairment and a near-$4 billion net loss in the trailing period. The article argues both are stronger value/dividend stocks than their headline multiples suggest, with yields of 3.3% for AbbVie and 2.8% for CVS.

Analysis

The market is over-penalizing both names for accounting noise, but the more interesting point is that the distortion is asymmetric: AbbVie’s print is a one-off acquisition charge embedded in a business with durable cash generation, while CVS is still in the middle of a multi-quarter re-rating as medical-cost normalization flows through the P&L. In both cases, headline P/E is a poor signal because it is being dominated by non-cash or non-recurring items; the cleaner lens is forward earnings plus free cash flow coverage of the dividend.

Second-order, these setups tend to create forced mispricing in the healthcare value chain. When investors screen out high trailing P/Es, they miss that both companies can be net buyers of their own equity if execution stabilizes, which supports downside and can mechanically tighten valuations over the next 2-3 quarters. For CVS, improving medical-benefit ratios can also improve sentiment toward managed-care-adjacent names and PBM economics broadly, while AbbVie’s acquisition-heavy model means the same accounting problem can recur, but only on deal-heavy periods rather than core operating performance.

The real risk is that the market may be underestimating how long it takes for analysts to raise forward numbers after a bad quarter; if utilization or cost trends re-worsen, the forward multiple can stay "cheap" for longer than expected. For AbbVie, the catalyst is simply normalization of reported earnings over the next 1-2 quarters; for CVS, it is more operational and could take 2-4 quarters of lower medical expense ratios to de-risk the story. Consensus is likely missing that both names are less about valuation and more about timing the earnings reset.

This is a classic case where the better trade may be to own the cleaner, less levered balance-sheet story and express caution on the name with more accounting volatility. The yield on both stocks provides a floor, but the path to multiple expansion depends on whether investors start trusting the earnings quality again rather than just the arithmetic.

Key Decisions for Investors

• Initiate a tactical long in ABBV over the next 1-2 weeks, targeting a 6-9 month horizon; upside comes from a normalization of trailing earnings optics and rerating toward low-teens forward P/E, while risk is another acquisition-related charge reintroducing headline volatility.
• Buy CVS on weakness only if the next cost data continues to confirm improving medical loss trends; 3-6 month trade with 15-20% upside if the market starts capitalizing forward earnings at low-teens multiples, but cut quickly if medical cost ratios revert higher.
• Pair trade: long ABBV / short a basket of higher-quality healthcare defensives with less valuation distortion; the relative value is in earnings recovery, not sector beta, and should work over 1-2 quarters if accounting noise fades.
• For more defined risk, use call spreads in ABBV or CVS with 4-6 month expiries to capture a rerating while capping downside from another one-time charge or delayed analyst revisions.
• Avoid shorting either name purely on trailing P/E; the better bearish expression, if needed, is a short-dated hedge into earnings when forward guidance risk is highest and the market is most likely to overreact to one-off items.