May will surely be an interesting month for stocks. Scores of bellwether companies are scheduled to release first-quarter earnings results in the coming days, which should give us the first detailed assessment of the economic damage caused by the coronavirus. What's more, numerous states plan to ease their lockdown measures over the course of May. How the market will react to either of these issues is anyone's guess at this point.
Should investors stay on the sidelines, favor defensively oriented asset classes, or swing for the fences on beaten-down growth stocks during this highly uncertain period? While there is no clear-cut answer to this burning question, one smart way to ride out this unprecedented market environment is to buy a basket of stocks that offer a compelling mix of deep value, reliable income, and above-average upside potential. Here are snapshots of three top stocks that tick these all-important boxes.
A high-yield Dividend Aristocrat
Shares of media and telecom giant AT&T (T -0.35%) are down by a whopping 23.5% in 2020. This Dividend Aristocrat has been beaten up recently for three main reasons: The pandemic's impact on its WarnerMedia division through the cancellation of key sporting events like the March Madness basketball tournament, the continued outflow of subscribers from its DIRECTV subsidiary, and concerns about the overall health of its balance sheet. In the first quarter of 2020, for instance, AT&T exited the three-month period with a total debt load of $185.8 billion.
Putting all the doom and gloom aside, AT&T remains a rock-steady income play. In the most recent quarter, it raked in $3.9 billion in free cash flow, and its core mobile service continued to perform well, even in this hectic environment. What's more, AT&T sports the second-highest dividend yield (6.83%) among its Dividend Aristocrat peers. During the company's latest conference call, management also noted that supporting the dividend will remain a key priority for the foreseeable future. Therefore, income investors can rest assured that AT&T doesn't anticipate a reduction to its top-notch dividend program anytime soon.
Berkshire will rebound (eventually)
Warren Buffett's holding company, Berkshire Hathaway (BRK.A 0.50%) (BRK.B 0.29%), has lost well over $50 billion in value this year, due to its exposure to struggling airline, oil and gas, and consumer goods stocks. Berkshire's shares, in turn, are now trading close to their three-year low. Unfortunately, this conglomerate appears poised to hit fresh 52-week lows during the first part of May.
The reason is that even Buffett doesn't appear optimistic about the near-term prospects of the global economy. Underscoring this point, Berkshire dumped its entire stake in four U.S. airline stocks last month, and the company decided against going on a buying spree as the market tanked in March. In short, Buffett clearly thinks there will be more attractive opportunities to buy stocks in the future. The Oracle of Omaha's defensive posturing, though, surely won't go over well with Wall Street this month.
The silver lining is that Berkshire has plenty of financial firepower to buy stocks when the company's brain trust thinks the time is right to do so. There's no telling when Buffett and his team will become net buyers of equities again. But one thing is certain: Berkshire will eventually strike a few major deals at some point during this economic downturn, some of which are bound to create an enormous amount of value for shareholders over the long run. So if Berkshire's stock does indeed break through its 52-week low in May, bargain hunters would be wise to buy in bulk.
Don't sleep on this biotech giant
Gilead Sciences (GILD 0.64%), a large-cap biotech known for its game-changing HIV and hepatitis C therapies, has gained almost 23% in value this year. The biotech's shares have raced higher in 2020 due to its closely watched COVID-19 therapy, remdesivir, which was approved for emergency use by the Food and Drug Administration last week. But remdesivir isn't even the most compelling reason to buy this blue chip biotech right now.
Gilead's stock is a strong buy for three core reasons. First, the biotech is poised to bring several new growth products to market in the near future. Headlining this group is experimental rheumatoid arthritis drug filgotinib, which has the potential to be a megablockbuster by the middle of the decade.
Second, the company has been slowly but surely building up its oncology franchise, which is key to its long-term outlook. During the first quarter of 2020, for instance, Gilead snapped up cancer specialist Forty Seven in a modest $4.9 billion deal, and it was rumored to have interest in two other small-cap oncology companies as well.
Third, Gilead sports an extremely strong balance sheet, free cash flow, and a top-notch shareholder rewards program. Keeping with this theme, the biotech offers an above-average dividend yield of 3.27%, and it recently bought back an eye-popping $1.3 billion worth of shares during the most recent quarter. Not many companies can support such a rich shareholder rewards program during the best of times. Gilead is doing it during the height of a global pandemic, which is a testament to the strength of its underlying business.
All told, this top biotech stock offers investors an attractive mix of near-term growth, deep value, and a rock-solid passive income opportunity.