Over the past two-plus months, uncertainties tied to the coronavirus disease 2019 (COVID-19) have taken investors for quite the ride. Following a decline of 34% in the benchmark S&P 500 in a span of 33 calendar days, it's taken roughly five weeks for the broad-based index to regain close to 30%. Though, it should be noted that the S&P 500 is still lower by a double-digit percentage since the year began.
But there is good news among this volatility. Namely, all stock market corrections and bear markets in history have proved to be a surefire buying opportunity for long-term investors. Though it can sometimes take years to completely put a bear market move into the rearview mirror, the stock market has shown time and again that it increases in value over the long haul. This means now is the time to add high-quality companies to your portfolio.
Here are three top stocks you can buy right now that should not only make you richer in May, but for the many years to come.
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Wells Fargo
I get completely get it... bank stocks are about as popular as a root canal when the economy is contracting. But following a series of challenges, all the bad news appeared more than baked into the share price of national money-center bank Wells Fargo (WFC -0.26%).
For those you who may not recall, Wells Fargo got itself into trouble in 2016 when it admitted to opening fake accounts in order to satisfy aggressive cross-selling goals at the branch level. Eventually, it was uncovered that 3.5 million unauthorized accounts were opened. As you might expect, this led to a huge settlement for Wells Fargo with the Justice Department, as well as a loss of trust from consumers.
But take a glance back at the Great Recession and you'll see a similar storm struck Bank of America (BAC 1.70%). Bank of America was hit with a flurry of lawsuits tied to its mortgage lending practices during the housing crisis, and the company did itself no favors in late November 2011 when it attempted to implement a $5 debit-card usage charge. Today, though, Bank of America is stronger and better capitalized than ever before. It's a telltale model that banking customers tend to have short-term memories when it comes to wrongdoing.
What really intrigues me about Wells Fargo is the company's ability to court more affluent clientele. Wealthier customers are less likely to change their spending habits or default on outstanding debts when economic hiccups arise. This ability to attract well-to-do clients is a big reason Wells Fargo has consistently had one of the highest return on assets among big banks.
Long-term investors can currently pick up Wells Fargo stock for 27% below book value -- its cheapest valuation in more than a decade – and net a 7% dividend yield in the process. Even with net interest income expected to decline in the short term, bread-and-butter deposit and noninterest income growth should allow Wells Fargo to navigate its way through the coronavirus pandemic.
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Intercept Pharmaceuticals
Though value stocks are clearly in focus during bear market declines, growth stocks shouldn't be overlooked. That's why investors should strongly consider adding liver disease-focused drug developer Intercept Pharmaceuticals (ICPT) to their portfolios.
Let's get the obvious out of the way: Intercept Pharmaceuticals is losing money, and that'll almost certainly be the case in 2021, as well. The company's only approved product is Ocaliva as a treatment for primary biliary cholangitis (PBC). At its peak, PBC might bring in around $300 million annually in sales.
The real lure here is Ocaliva as a treatment for nonalcoholic steatohepatitis, or NASH. Also known as fatty liver disease, NASH affects between 2% and 5% of the U.S. population, is expected to be the leading cause of liver transplants by the midpoint of the 2020s, and is a $35 billion indication with no approved therapies. Ocaliva has an opportunity to be the first drug out of the gate in this indication.
Unfortunately, COVID-19 delayed a Food and Drug Administration (FDA) panel date until June 9, which may wind up pushing back the company's review date from late June to late July. Typically the panel review date and FDA's decision are about six weeks apart. But even if this decision is delayed a few weeks, I believe the late-stage data speaks for itself. Aside from a high incidence of pruritus (itching) in the high-dose group, Ocaliva met one of its two co-primary endpoints – a statistically significant reduction in liver fibrosis without a worsening of NASH. Only one co-primary endpoint was needed for the phase 3 trial to be a success
Also working in Intercept's favor is the fact that Ocaliva is already approved to treat PBC, thus the FDA already has a familiar safety profile on the drug. Even if Ocaliva is only going to be used on a smaller subset of NASH patients, it'll still have a multibillion annual sales opportunity at its peak, if approved.
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AT&T
Last, but not least, investors looking for an excellent deal on a household name should consider buying or adding to their stake in telecom giant AT&T (T 1.17%).
After an 11-year bull market, the idea of investing in the relatively slow-growing AT&T probably sounds less than palatable. After all, this is a company that's been a victim or cord-cutting, with its DirecTV satellite segment suffering regular net subscriber losses over the past four years. But there's more to AT&T than meets the eye.
The biggest catalyst over the next half decade for AT&T is likely going to be the rollout of 5G networks. It's been roughly a decade since wireless providers introduced faster data downloads via 4G, and you can rest assured that the millions upon millions of addicted smartphone users out there (myself included) will be champing at the bit to upgrade their devices to take advantage of faster download speeds. Since AT&T generates its juiciest margins from the data side of its wireless business, an increased amount of data usage could be the perfect recipe to jump-start growth back toward the mid-single-digits on an annual basis.
Investors would also be wise not to completely overlook the company's streaming potential. The addition of Time Warner in 2018 added important assets (CNN, TBS, and TNT) that can help lure new streaming users. Further, HBO Max is set to launch later this month at a price of $14.99 a month. Though AT&T TV is pricier than its peers at $50 a month, HBO Max could be the dangling carrot that keeps streaming users hanging around.
Above all, investors get a deeply discounted value stock with steady income. AT&T has raised its dividend for 36 consecutive years, and is currently paying out a 6.8% yield. Based on this yield alone, reinvested payouts could double your money in just over a decade. Plus, at 9 times forward earnings, AT&T is at the low-end of its historic forward price-to-earnings multiple. AT&T isn't a sexy investment by any means, but it's priced to make investors money.
