2 Stocks That Are Much Cheaper Than They Look

AbbVie and CVS Health look expensive on trailing P/E at more than 100 and 42, respectively, but both are much cheaper on a forward basis at 15 for AbbVie and 13 for CVS after non-recurring charges depressed recent earnings. AbbVie’s Q3 2025 net income fell to $188 million from nearly $1.6 billion due to a $2.7 billion acquired in-process R&D charge, while CVS posted a near $4 billion loss tied to a $5.7 billion goodwill impairment. The article argues both remain attractive healthcare dividend stocks, with yields of 3.3% for AbbVie and 2.8% for CVS.

Analysis

The important signal here is not that these are "cheap" stocks, but that trailing earnings are temporarily de-stabilized by accounting items that distort factor screens and quant models. That creates a window where systematic strategies and retail screeners may under-own both names, while discretionary capital can step in before forward estimates fully reset. In other words, the opportunity is less about multiple compression and more about estimate revision catch-up over the next 1-3 quarters.

ABBV’s setup is cleaner than CVS’s because the valuation gap is driven by a discrete non-cash acquisition-related hit, which should roll off mechanically once the market regains confidence in normalized earnings power. The second-order effect is that a durable dividend payer with visible cash generation can attract capital from bond-proxy healthcare allocators if rates remain range-bound, giving the stock a bid even without multiple expansion. The risk is that investors overestimate how quickly post-acquisition earnings normalize; if integration spending or additional deal-related charges recur, the market will keep discounting the quality of earnings.

CVS is more of a repair story, and that makes the path dependent on medical cost trend rather than simply accounting normalization. If benefits ratios keep improving, the stock can rerate quickly because consensus will be forced to reconcile margin recovery with a still-low forward multiple; if costs re-accelerate, the market will punish it as a structurally lower-margin business rather than a temporary impairment story. The contrarian point is that the market may already be pricing CVS as a broken asset, so even modest operational improvement could create outsized upside over 6-12 months, but the timing is less certain than ABBV.

Key Decisions for Investors

• Long ABBV vs. high-quality defensives that screen on clean trailing earnings but lack similar cash yield: look for 3-6 month mean reversion as non-recurring charges roll off; target 10-15% upside with limited downside if forward estimates hold.
• Initiate a small starter long in CVS with a 6-12 month horizon; the risk/reward is attractive only if medical cost trend continues improving, but a rerate toward low-teens forward multiple can deliver 20%+ upside from depressed sentiment.
• Pair trade: long ABBV / short a healthcare name trading on cleaner trailing earnings but weaker forward growth, to isolate the valuation reset from broader sector beta; catalyst window is next earnings cycle.
• Use out-of-the-money call spreads on CVS for an event-driven rerating trade rather than outright equity if you want convexity with defined risk; best entry is on any post-earnings pullback when implied volatility compresses.
• Avoid relying on trailing P/E in healthcare screeners for the next 1-2 quarters; overweight names where the gap between trailing and forward valuation is driven by identifiable one-time charges, not deteriorating core operations.