For the past three months, investors have had their willpower tested like never before. That's because the coronavirus disease 2019 (COVID-19) pandemic has pushed almost 39 million people out of work over a nine-week stretch, led to record-breaking stock market volatility as measured by the CBOE Volatility Index, and was responsible for erasing 34% from the benchmark S&P 500 in just 33 calendar days. Put simply, we've never seen moves like this before...ever.
But if there's one thing we've learned about panic selling as long-term investors, it's that it creates opportunity. No matter how dire things may have appeared in previous bear markets, bull-market rallies eventually erase all evidence of downward moves in the stock market. That makes a bear market the perfect time for long-term investors to go shopping for deeply discounted stocks.
Also keep in mind that you don't have to be rich to generate a handsome return from the stock market. If you have even $3,000 that isn't needed for bills or an emergency fund, you have more than enough to invest in these five beaten-down stocks that are just begging to be bought.
With the exception of the oil and gas industry, there's probably not a harder-hit industry lately than bank stocks. Of course, that's to be expected. Bank stocks are highly cyclical, and they're liable to generate less in net interest income with the Federal Reserve pushing its federal funds rate back to an all-time low. But that's no reason to overlook money-center giant Wells Fargo (WFC 0.22%).
Wells Fargo is still reeling from the disclosure that 3.5 million unauthorized accounts were opened between 2009 and 2016. Rebuilding trust isn't easy in any industry, but it's not as hard as you might think in the banking industry, where consumers' memories are short-lived.
What the company does have going for it is the ability to attract more affluent clientele. Well-to-do customers are less likely to change their spending habits during a recession, which is a big reason Wells Fargo has bounced back from previous recessions so quickly, and why it generates such robust returns on its total assets.
Having declined more than 50% year to date, opportunistic investors can pick up shares of Wells Fargo for a mere 61% of their book value, which is more than a decade low.
Teva Pharmaceutical Industries
Similar to Wells Fargo, brand-name and generic-drug producer Teva Pharmaceutical Industries (TEVA -0.59%) has had its fair share of issues in recent years. It's settled bribery charges, shelved its dividend, lost exclusivity on its top-selling drug (Copaxone), and more recently contended with a 44-state lawsuit regarding its role in the opioid crisis. But at four times its projected per-share profit potential, Teva looks to have paid its penance.
Teva's turnaround can be attributed to no-nonsense CEO Kare Schultz. Since taking the reins, Schultz has reduced the company's annual operating expenses by $3 billion and lopped nearly $10 billion off of Teva's net debt. Teva still has work to do to further clean up its balance sheet, but Schultz has made incredible progress in three years, and the company's (at least) $2 billion in annual operating cash flow should help to further pare down its debt.
What's more, generics remain the smart way to play the future of healthcare. An aging global population combined with increased access to healthcare and skyrocketing brand-name drug costs paints a picture where generic drugs shine.
I get it -- investing in tobacco is about as exciting as watching paint dry. Only when the paint dries for Altria Group (MO 0.38%), you wind up with an 8.9% annual yield that, for the time being, looks wholly sustainable. With a yield this high, reinvesting your dividends can double your initial investment in just over eight years.
While there's no denying that adult cigarette smoking rates in the U.S. are at an all-time low, it's not as if opportunity has left the building for Altria. Since nicotine is a highly addictive chemical, Altria hasn't had any issues raising its prices to drive very modest top-line growth. Additionally, an aggressive share repurchase plan has largely kept Altria's earnings per share (EPS) figure moving in the right direction. At only 8 times next year's EPS, Wall Street is giving this highly profitable business little credit.
Altria is also expanding its reach beyond tobacco. It owns a 45% equity stake in Canadian pot stock Cronos Group and will likely play an instrumental role in helping Cronos introduce vape products in Canada.
Speaking of beaten-down marijuana stocks, investors with $3,000 in capital that can be put to work should consider buying Canadian licensed producer OrganiGram Holdings (OGI -1.01%).
Despite its recent struggles, and that of the entire Canadian pot industry, OrganiGram remains the only licensed producer that's generated at least one quarter of no-nonsense operating profit (i.e., without the assistance of one-time benefits or fair-value adjustments). It has wholesale agreements lined up with every Canadian province and has devoted quite a bit of capital to its fully automated line of infused chocolates. Derivatives such as edibles will generate substantially higher margins for OrganiGram than dried cannabis flower.
Also unique is the fact that OrganiGram's only facility has three tiers of cultivation ongoing in its grow rooms. By maximizing its growing space, OrganiGram is able to keep its all-in costs down and should produce some of the highest yields per square foot in the entire industry. Having only one cultivation facility should also allow the company to be nimbler when it comes to controlling its operating expenses and matching supply to prevailing market demand.
American Eagle Outfitters
Finally, even though brick-and-mortar mall-based retailers are a mess as of late, don't overlook teen and young-adult-focused retailer American Eagle Outfitters (AEO 1.06%). Shares of the company are down almost 40% year to date.
Though it's true that online retailers have taken quite a bite out of mall-based retailers' pocketbooks, that really hasn't been the case for American Eagle. Prior to COVID-19, the company was riding a 20-consecutive-quarter streak of positive year-over-year comp sales for its American Eagle Outfitters brand, and 21 straight quarters of double-digit year-over-year comp sales growth for its intimate brand Aerie. It certainly doesn't hurt that American Eagle has seen strength from direct-to-consumer sales, either.
Of particular note is the company's exceptionally strong growth from Aerie. Management has plans to open dozens of new Aerie locations when it makes economic sense to do so, and it could gain even more intimate apparel market share with L Brands planning to close around 250 Victoria's Secret stores throughout North America.
American Eagle Outfitters is a stock you can safely pluck off the clearance rack.