This has been a truly unforgettable year if you're an investor. Amid record-breaking levels of volatility, we've witnessed the S&P 500 lose more than a third of its value in a five-week stretch, as well as the technology-dependent Nasdaq Composite set more than two dozen all-time closing highs. No one really has any clue what to expect next as a result of the coronavirus pandemic.
However, history has shown that periods of heightened volatility and fear are a great time to buy stocks. Despite inevitable stock market corrections and bear markets, the S&P 500 has historically gained 7% per year, inclusive of dividend reinvestment. In other words, the average investor can double their money once a decade, so it's a smart idea to pounce anytime great businesses go on sale.
And the best part about investing in today's stock market is that you don't need a mountain of cash to get started or to build wealth. If you've got $1,000 that won't be needed for bills or emergencies, you have more than enough to start buying quality stocks.
Though many outstanding companies have bounced back from their lows in 2020, the following four beaten-down stocks are just begging to be bought.
One of the hardest-hit industries during the coronavirus crash were bank stocks, with Wells Fargo (WFC) leading the way to the downside among money-center banks. Year to date, Wells Fargo has lost close to 53% of its value. With the Federal Reserve promising record-low lending rates through 2022 (that's bad for banks' interest-income potential), and Wells Fargo trying to move on from its 2016-2017 fraudulent account scandal, it's been the poster child for COVID-19 weakness.
But there's a boatload of opportunity here for patient investors. For one, consumers tend to have a short-term memory when it comes to banking issues. Bank of America, for instance, paid tens of billions in fines tied to its role in the mortgage meltdown during the late 2000s, then tried to extract a monthly fee for debit-card use back in 2011. Despite these missteps, BofA is stronger than ever today. Wells Fargo should have few issues attracting affluent clientele in the years to come.
Wells Fargo is also offering one heck of a value proposition. We're talking about a money-center bank that's historically been among the best in return on assets that's now valued at just 64% of its book value. It's been well over a decade since Wells Fargo was this cheap relative to its book value. Even with the company reducing its dividend, it should still provide steady income for shareholders while they wait for the Wells Fargo turnaround to take shape.
Despite being part of a historically defensive sector, CVS Health (CVS -0.52%) has been battered. The nation's largest pharmacy chain is down 16% year to date and has lost 42% on a trailing-five-year basis. But at roughly eight times Wall Street's 2021 earnings-per-share forecast, the time appears right to pounce on CVS.
One of the key growth catalysts for CVS Health is the company's 2018 acquisition of Aetna. Generally, buying an insurance company wouldn't be considered a growth move. However, Aetna's organic growth rate is actually higher than CVS Health's, which is dragged down by the razor-thin margins attached to its front-end sales (e.g., groceries). The Aetna deal should improve organic growth potential, result in modest cost synergies, and provide an incentive for Aetna's members to stay within CVS Health's ecosystem to fill prescriptions.
Additionally, CVS Health's approach toward personalized medicine should pay dividends throughout the decade. The company plans to open approximately 1,500 HealthHUB health centers around the U.S., with the intent of driving foot traffic into its stores and building an attachment at the local community level. These health centers will primarily focus on helping chronic-disease patients manage their illnesses, which should prove fruitful to CVS Health over the long run.
Another beaten-down brand-name stock that investors with $1,000 can consider buying is integrated oil and gas giant ExxonMobil (XOM 0.15%). Despite bouncing well off of its March lows, the company is still lower by 39% year to date, and down 47% over the trailing three-year period.
Although there's a ton of focus on green-energy projects, don't lose sight of the fact that fossil fuels aren't going away anytime soon. The beauty of ExxonMobil's integrated business model is that it insulates the company during inevitable periods of demand volatility. Make no mistake about it -- this is a company that does its best when exploration and production (E&P) are driving growth. But when crude prices fall, ExxonMobil is able to lean on its downstream refining and chemical operations to supplement its cash flow.
Furthermore, ExxonMobil has plenty of levers it can pull to make itself nimbler. In April, the company announced that it would reduce its capital expenditures for 2020 by approximately $10 billion, or 30%. Doing so will, for the time being, preserve ExxonMobil's ultra-high 8.4% dividend yield.
But just because ExxonMobil is cutting costs doesn't mean it's ignoring potential avenues for growth. The Payara project offshore of Guyana remains an E&P growth driver that could begin contributing meaningfully to the bottom line by mid-decade.
Teva Pharmaceutical Industries
Finally, consider putting $1,000 to work in one of the most beaten-down companies in the healthcare sector: brand-name and generic-drug producer Teva Pharmaceutical Industries (TEVA 0.34%). Despite being up 20% on a year-to-date basis, Teva's stock is down an unsightly 81% over the trailing five years.
If you're wondering why Teva has been such an investor eyesore, it's tied to a combination of issues, including the loss of exclusivity on its top-selling drug Copaxone, a settlement tied to bribery allegations, executive turnover, and potential ties to the opioid crisis. All of these concerns have pushed Teva down to less than five times Wall Street's forecasted earnings per share for 2021.
However, Teva has a secret weapon, and his name is Kare Schultz. Hired in September 2017 as Teva's new CEO, Schultz is a turnaround specialist. In his less than three years at the helm, Schultz has reduced the company's annual operating expenses by about $3 billion and is responsible for reducing net debt by almost $10 billion -- from $34.2 billion to $24.3 billion. By selling off noncore assets and utilizing operating cash flow to modestly lower Teva's debt load, Schultz has placed Teva in a much better financial position.
Teva also stands to benefit from an aging global population that's gaining greater access to medical care. Though brand-name drug growth will drive margins higher, Teva's generic business should reap the rewards of greater demand over time.