Cardinal Health Stock a Buy: Healthy Gains on the Way We take a look at Cardinal Health, a high-quality business that may be undervalued at this time.

While the market has been somewhat difficult to get a read on lately, there's still plenty of great opportunities out there for investors to consider including Cardinal Health (NYSE:CAH). Anytime a stock breaks out from a three-year consolidation pattern, it's worth paying attention to. It's even better if said stock happens to be a high-quality business trading at a very attractive valuation. This is exactly the case with Cardinal Health, which has so much to offer investors at this time.

As one of the top 3 U.S. distributors of pharmaceuticals, this health care company is one of the top picks in its sector given its growth prospects and strong competitive position. It's the type of stock that you can rely on as the cornerstone of your portfolio for years to come. Let's take a deeper look at this company's business below and review some strong supporting points about why the stock is a buy at this time.

A Healthy Business Model

If you aren't very familiar with the pharmaceutical distribution industry, it's important to note that three big companies that control 90% of the U.S. market share. Those three companies are McKesson, AmerisourceBergen, and Cardinal Health. This is one of the great reasons to consider adding shares of Cardinal Health since there are big barriers to entry into the industry thanks to a highly regulated environment. That means Cardinal Health should retain its leading market position for years to come and continue benefitting from the sheer scale of the pharma industry.

Cardinal Health essentially connects the manufacturers of pharmaceuticals and medical supplies with a huge range of customers that includes pharmacies, hospitals, physician offices, clinical labs, outpatient surgery centers, and more. Two of the company's biggest customers are CVS and OptumRx, and Cardinal has deals locked in with them until 2023 and 2024, respectively. It's also worth mentioning that Cardinal Health has more exposure to medical supplies manufacturing and distribution than the other "big three" companies, which could enable it to eventually become the go-to company for health care providers in need of medical supplies and medicines.

Numerous Growth Drivers

We know that the healthcare industry will continue to grow over the years, and the global pandemic has only highlighted the importance of companies that are involved in keeping the world in good health. That bodes well for a company like Cardinal Health, which should see strong earnings in 2021 and beyond. Consider the fact that the world's population is constantly aging and will require more health care products and services each year. You also have to like Cardinal's growth prospects as elective procedures pick up again as people get more comfortable with the idea of heading back to the doctor for non-essential care.

Don't forget about President Joe Biden's stance on health care and his plans to build upon the Affordable Care Act, which could be another strong catalyst for this company. Finally, the fact that Cardinal Health became a network administrator of the Federal Pharmacy Partnership Strategy for COVID-19 will help the company play a critical role in one of the largest mass vaccination programs of all time should be viewed as a strong growth opportunity. It's safe to say that there are plenty of ways this company can reward long-term shareholders who are along for the ride.

Dividend Aristocrat and Bargain Valuation

If you still aren't sold on Cardinal Health, keep in mind that this company is a dividend aristocrat and could be a nice way to generate income over the years. The stock currently offers investors a 3.11% dividend yield and increased its dividend payout for 32 consecutive years at this time. While the company's dividend growth rate isn't necessarily special, the fact that the share price has been benefitting from share buyback programs over the years and that the company is consistent in its dividend growth is confirmation that this is a well-run company that loves to reward its shareholders.

While the company's share price has been depressed due to the company's issues related to its role in the opioid crisis, there's a good chance that those issues have been resolved and that investors are still undervaluing this great company. When you compare Cardinal Health's P/E ratio of 13x with the 42x P/E ratio for the S&P 500, it's clear that this is a stock trading at a bargain valuation. The bottom line here is that Cardinal Health stands out in a market full of overvalued companies and is a strong buy given its recent breakout.