Investing in 2020 should really come with an instruction manual, because we've seen the stock market do things that were never believed to be possible. We witnessed the CBOE Volatility Index log its highest reading in history, saw the benchmark S&P 500 lose 34% of its value in roughly a month, and got to see the widely followed index claw back all of its losses in the subsequent five-month period. Volatility is always present in the stock market, but this year has been off the scale.
However, volatility doesn't have to be a run-and-hide event. That's because volatility opens the door for long-term investors to buy into high-quality stocks at a discount.
Another thing volatility tends to do is highlight value stocks that are on sale. Proven businesses are often a great place to park your money when short-term emotions get the better of Wall Street. With this in mind, the following four top value stocks are on sale right now and are just begging to be bought.
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AT&T
I get it -- AT&T (T 1.17%) is tape-up-your-eyelids boring. But boring business models are often highly profitable, and in the case of AT&T, provide exceptional income potential above and beyond the rate of inflation.
Last week, Wall Street got a glimpse of AT&T's third-quarter operating results, which were adversely impacted by the coronavirus disease 2019 (COVID-19) pandemic and showed the negative effects of ongoing cord-cutting from the company's DirecTV subsidiary. But there were also numerous data points that deserve positive recognition.
For example, postpaid phone churn rate fell by 8 basis points to 0.69% from the prior-year period, with over 5 million domestic wireless net account additions during the quarter. Wireless service has become an almost basic-need for Americans, implying that recessions tend to have very little impact on AT&T's wireless/mobility segment.
I'm also pretty impressed with the combination of HBO and HBO Max subscribers topping 38 million domestically and 57 million internationally. The domestic figure was about 2 million above AT&T's own expectation, and it suggests that demand for streaming options, following the May launch of HBO Max, remain strong.
AT&T's focus on selling noncore assets and reducing its debt, all while comfortably maintaining a dividend yield of more than 7%, makes it a top value stock to buy right now.
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Altria Group
Another deep-discount stock that never seems to get any love is tobacco giant Altria Group (MO 0.70%).
There's no doubt that Altria has been facing an uphill battle against tightening tobacco regulations in the United States. As a result, the company has seen its cigarette shipment volumes falling precipitously in recent years. That's probably not a trend we're going to see change anytime soon. But there are a handful of catalysts investors are overlooking.
For instance, Altria has historically benefited from its exceptional pricing power. Nicotine is an addictive chemical, and Altria knows it. Being able to pass along inflation-topping price hikes on its tobacco products has been a winning strategy for years.
Altria Group also has exciting things happening beyond tobacco. It has an exclusive agreement in place to market Philip Morris International's IQOS heated tobacco device in the United States. The plan for Altria is to introduce this device into four new markets over the next 18 months, as well as organically grow heated tobacco unit sales in existing markets where IQOS is sold in the U.S.
Also, don't overlook the willingness of this company's board to repurchase common stock. As a slower-growing company, Altria has often turned to pumped-up dividends and significant share buybacks to reward its shareholders. Today, investors can get a smoking-hot deal on Altria, with the company yielding an astounding 8.8% and valued at less than 9 times Wall Street's forecast earnings for 2021.
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Teva Pharmaceutical Industries
Value seekers would also be wise to consider digging into brand-name and generic-drug developer Teva Pharmaceutical Industries (TEVA 1.01%).
As with the other value stocks here, the reason Teva is so inexpensive (less than 4 times Wall Street's profit forecast for 2021) is because it's facing some near-term hurdles. Teva has been a lawsuit magnet of late, and is contending with allegations that it helped fuel the opioid crisis. The company also grossly overpaid for its Actavis acquisition and has been backpedaling because of its debt ever since.
However, Teva's turnaround specialist CEO Kare Schultz, who was hired in 2017, has worked wonders. In three years, Schultz has Teva on track to reduce its annual operating expenses by $3 billion, as well as lower its net debt by roughly $10 billion. This has been done through a combination of asset sales, lower expenditures, and using positive operating cash flow to pay down debt. There's still plenty of work to be done, but Schultz has moved Teva well out of danger territory.
Teva Pharmaceutical should also benefit from an aging America. As baby boomers age and brand-name drug prices soar, there's the growing likelihood that physicians, insurers, and consumers will push for generic medications. Teva should remain one of the largest generic drugmakers in the world, and its broad portfolio should see plenty of volume in the years to come.
Image source: CVS Health.
CVS Health
A final top stock that's at a bargain-basement valuation is pharmacy chain CVS Health (CVS -1.62%). Investors can scoop up shares of CVS Health for about 8 times Wall Street's forecast earnings per share for the upcoming year.
Why so cheap? Whereas most healthcare stocks offer a basic-need good or service that protects them from being clobbered by recessions, that's not the case for CVS Health. The COVID-19 pandemic has caused foot traffic into the company's stores and clinics to slow, which has stymied its growth.
The good news, though, is that CVS Health has a number of catalysts that can push its valuation higher. A good example is the 2018 acquisition of health-benefits provider Aetna. The combination of these two powerhouses is expected to yield significant cost synergies, and will actually improve CVS Health's organic growth rate. It also provides an incentive for Aetna's millions of members to stay within the CVS Health universe of services.
Speaking of services, CVS Health has plans to open approximately 1,500 of its HealthHUB health clinics nationwide. These clinics are primarily focused on connecting chronically ill patients with physicians and specialists. More importantly, it gives CVS a way to engage at the community level and drum up business for its higher-margin pharmacy segment.
CVS Health is on sale and waiting for investors to scoop it shares up.
