The past four weeks have arguably been unlike anything Wall Street and Main Street have ever seen. Volatility has been through the roof, with the Dow Jones Industrial Average logging eight of its 10 largest single-day point declines, and four of its biggest single-day point gains (through Monday, March 16). These declines also included the second- and fifth-largest single-session percentage declines in the Dow's 123-year history.
At the heart of this investor unrest is the spread of coronavirus disease 2019 (COVID-19) and the uncertainty that mitigating measures to curb the proliferation of this illness might have on the U.S. and global economy. With a number of European nations on lockdown and more states pushing for restaurant closures, there's little doubt at this point that the economic toll to limit the spread of coronavirus is going to be enormous.
However, periods of panic throughout history have always been open-door opportunities for investors to pick up high-quality, brand-name companies on the cheap. With valuations now significantly depressed from where they were roughly a month ago, now is the time to buy the following five brand-name stocks.
Though it's very likely that Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL), the company behind the Google search engine and YouTube, will face some advertising softness in the very near term, the recent decline in shares of the company have made it a no-brainer buy.
Alphabet has a number of factors working in its favor. For instance, it controls roughly 92% of all global search market share, as of February 2020, making it the go-to source for search-based advertising dollars. This gives Alphabet incredible pricing power, which with relatively stable traffic acquisition costs should lend to improved long-term cash flow.
This is also a company that's seeing plenty of high-margin ancillary growth. An increase in YouTube streaming has pushed ad revenue on the platform higher by 86% over the past two years. Meanwhile, Google Cloud sales have more than doubled since 2017, which is noteworthy since cloud services provide considerably juicier margins than traditional ad revenue.
The reason it's time to buy right now is that Alphabet is valued at an estimated 8 times its 2023 cash flow per share. That's less than half of the company's average premium of close to 18 times cash flow over the past five years.
Sometimes the market can make you shake your head in disbelief, just as it did this past Monday, March 16, when do-it-yourself (DIY) retailer Home Depot (NYSE:HD) plunged more than $40 (about 20%, in percentage terms) in a single session.
While I do understand the short-term thesis that consumers may be less willing to spend money over the coming weeks as COVID-19 spreads throughout the U.S., investors are ignoring the fact that Home Depot has both angles of the housing market covered.
For instance, Home Depot was a prime beneficiary of the mid-2000s housing boom, and it has seen a resurgence in contractor-based spending for much of the past decade. Historically low lending rates are making it easy to build and sell homes, which has lined Home Depot's pockets. But the company can also lean on home remodels to drive growth, as it did during the Great Recession. Home Depot has multiple sales channels that could deliver higher sales in the years to come.
Right now, Home Depot's forward price-to-earnings ratio of 14.5 is the cheapest this company has been valued since the financial crisis. If we've learned anything, it's that Home Depot is the DIY retailer you'll want to own.
Brand-name stocks don't have to be sexy or deliver off-the-scale growth to be excellent investments. Sometimes exceptionally boring business models are the top stocks to own through thick and thin.
As an example, telecom and streaming giant AT&T (NYSE:T) has outperformed the broader market thus far, but has still shed more than 17% of its value since coronavirus fears began rattling Wall Street. There's apparently concern that consumers may continue to cut the cord with DirecTV (an AT&T subsidiary) to save money, or perhaps hold off on upgrading their smartphone to a new 5G device. However, these very-short-term concerns don't appear to be well founded.
The thing to realize here is that smartphones have become a veritable basic-need good, with wireless a basic-need service. Churn rates for AT&T have remained relatively low because consumers are unwilling to give up their ability to talk, text, document with photos/video, and surf the internet. Slowing economic activity only increases the likelihood of higher data usage.
Also, don't overlook AT&T's streaming assets. Even though traditional cable could feel a near-term pinch, assets like HBO Now could be long-term margin drivers, especially with economic activity at a lull.
At 8 times Wall Street's consensus profit forecast for 2021, and with a 6.5% yield, the time to buy AT&T is now.
The name U.S. Bancorp (NYSE:USB) might not roll off the tongue, but it's the company behind the popular U.S. Bank branches.
Bank stocks have faced recent adversity given the Fed's 150 basis points' worth of emergency rate cuts in March. Since lower rates put pressure on net interest margin (i.e., the difference between the rate at which banks borrow and the rate at which they lend), there's the strong likelihood that net interest income will be down across the board for commercial banks.
But U.S. Bancorp isn't your typical bank. With a grassroots focus on the bread-and-butter of banking — loan and deposit growth — it's been able to generate more profit with its assets than any other big bank. Usually, investors have had to pay quite the premium to buy into U.S. Bancorp and its superior return on assets. But that's not the case anymore. After Monday's wipeout, U.S. Bancorp is now valued at only 9% more than its book value (this compares to double its book value in December 2019), and a mere 7 times next year's projected profit.
Despite big banks holstering their buyback programs to contend with whatever coronavirus fallout may come their way, U.S. Bancorp's 5.2% yield also looks like a great way for investors to pad their pocketbooks. It's a brand-name bank stock worth adding right now.
A final brand-name stock that smart investors should buy right now is pharmacy chain CVS Health (NYSE:CVS).
Although CVS generates a good portion of its margin from its pharmacy operations, Wall Street appears to be concerned with reduced foot traffic and weaker front-end sales, as evidenced by the company losing more than a quarter of its value in four weeks. However, these concerns should be taken with a grain of salt.
For one, CVS Health acquired health insurer Aetna in 2018, and Aetna just happens to have a more robust organic growth rate than CVS' retail and pharmacy operations. Combining Aetna's organic growth with expected cost synergies from their merger, and also factoring in that many of Aetna's insured members are likely to stay within the CVS pharmacy network, makes this acquisition a long-term growth driver for CVS.
CVS Health is also angling for the personal touch with its plan to open approximately 1,500 HealthHUB health clinics across the U.S. by 2021. These clinics can improve store traffic and up prescription fills by focusing on simple medical care visits.
With the company going for less than 7 times next year's forecasted earnings, it's time to add CVS Health to your portfolio.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Sean Williams owns shares of AT&T and CVS Health. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Home Depot. The Motley Fool recommends CVS Health and recommends the following options: long January 2021 $120 calls on Home Depot and short January 2021 $210 calls on Home Depot. The Motley Fool has a disclosure policy.