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3 Top Stocks You Can Buy on Sale

By Matthew Frankel, CFP® – Updated May 8, 2020 at 9:07AM

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These three companies could be fantastic bargains for long-term investors.

While the coronavirus outbreak caused the stock market to plunge by more than 35% from its all-time highs in late March, it has rebounded rather sharply, currently down by just over 10% in 2020.

Despite the strong performance since its March lows, there are still some excellent bargains in the stock market for patient, long-term investors. Here's why Berkshire Hathaway (BRK.A -0.97%) (BRK.B -0.81%), Bank of America (BAC -1.32%), and Realty Income (O -4.01%) still look like compelling opportunities, even after the recent market rally.

A person counting money in their hands

Image source: Getty Images.

Investors are a bit frustrated with the Oracle of Omaha

After Berkshire Hathaway's first-quarter earnings report and annual shareholder meeting, it appears that investors are starting to lose patience with the Warren Buffett-led conglomerate.

For one thing, many had been hoping to learn that Buffett and his team put some of the company's massive cash hoard to work during the March coronavirus crash, but the exact opposite happened -- Berkshire is now sitting on $137 billion in cash, it's highest amount ever. Plus, acquisition opportunities remain scarce, and Buffett announced that the company bailed on its airline investments, resulting in a significant loss. Perhaps most importantly, Buffett's tone in this year's meeting was not quite as optimistic as it normally is.

Because of these things, though, investors can buy Berkshire shares at a big discount. The stock trades for just 1.14 times book value (Berkshire has rarely dipped below a P/B multiple of 1.2), and Berkshire remains one of the best-positioned companies to put money to work. While it's been a frustrating run for Berkshire shareholders over the past few years as the company struggles to find opportunities, patient investors who buy at these levels could be handsomely rewarded.

BRK.B Price to Book Value Chart

BRK.B Price to Book Value data by YCharts.

A well-run bank trading for a massive discount

It's no surprise that bank stocks have been hit especially hard in the downturn. Not only is the low-interest environment terrible for bank profits, but if the recession lasts for longer than expected, it could lead to a massive wave of loan defaults as consumers start having trouble paying their bills.

Even so, there could be tremendous value in the banking industry for long-term investors, and Bank of America is one I'm watching closely. The bank set aside $4.8 billion in loan loss reserves during the first quarter, and along with its peers, it has suspended share buybacks for the time being. However, the bank has done a fantastic job of improving its asset quality and efficiency in recent years and has emerged as a leader in mobile and online banking technology.

Bank of America currently trades for a remarkably low valuation of just 83% of its book value, despite being well-capitalized and able to weather the COVID-19 storm. While it's fair to expect profits to remain depressed for the next year or two, Bank of America is well-positioned to thrive in the post-COVID world.

One of the best dividend stocks you can buy

I've called Realty Income the best all-around dividend stock in the market, and for good reason. The company's business is built for steady and growing income, as well as long-term asset growth.

If you aren't familiar, Realty Income is a real estate investment trust, or REIT, that primarily owns single-tenant retail properties. Think drug stores, convenience stores, restaurants, and dollar stores, to name a few of the major tenant types. Realty Income owns more than 6,000 properties in the U.S. and U.K., and most of its tenants operate essential businesses (meaning they've been open and paying rent during the coronavirus-caused shutdowns).

Realty Income has increased its monthly dividend payment for 90 consecutive quarters, and there's no reason to believe this streak will come to an end anytime soon. This isn't just a dividend stock, either. Since its 1994 NYSE listing, Realty Income has produced a 14.6% compound annualized return for investors -- a remarkable level of performance to sustain for more than a quarter-century. After the recent downturn, Realty Income is still more than 35% off its highs, and it has a 5.3% dividend yield, which looks like an attractive entry point for long-term investors.

Don't expect a smooth ride, at least for a while

To be perfectly clear, while I think all three of these will be excellent long-term investments, I'd expect them all to be rather volatile until the COVID-19 pandemic is largely behind us (which isn't likely to happen for several months at the earliest). So, only invest in these -- and any other stocks for that matter -- if you're prepared to ride out the turbulent times and focus on the long-term potential.

Matthew Frankel, CFP, owns shares of Bank of America, Berkshire Hathaway (B shares), and Realty Income. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short June 2020 $205 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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Stocks Mentioned

Bank of America Corporation Stock Quote
Bank of America Corporation
$30.66 (-1.32%) $0.41
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$406,700.00 (-0.97%) $-4,004.98
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$269.58 (-0.81%) $-2.20
Realty Income Corporation Stock Quote
Realty Income Corporation
$57.95 (-4.01%) $-2.42

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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