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3 Cheap Stocks You Can Buy and Hold for Decades

By Keith Speights – Sep 18, 2020 at 6:04AM

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Most stocks are anything but cheap right now. These are three great exceptions.

Even with the recent pullback, the stock market remains near all-time highs. There aren't many stocks with attractive valuations. Of those, quite a few aren't the kinds of stocks you'd want to touch with a 10-foot pole.

That doesn't mean that there aren't some appealing stocks available at bargain prices, though. Here are three cheap ones that you can buy and hold.

Three arrows stuck on a target next to a target with a dollar sign in front of it

Image source: Getty Images.

1. AbbVie

AbbVie (ABBV 0.25%) shares trade at only 7.4 times expected earnings. The big pharma stock is available at a discount primarily because investors aren't sure how AbbVie will perform once its top-selling drug Humira begins to face biosimilar rivals in the U.S. beginning in 2023.

But there are plenty of reasons to feel pretty good about AbbVie's prospects. The company already has strong successors to Humira on the market. Rinvoq won Food and Drug Administration (FDA) approval last year for treating rheumatoid arthritis, while Skyrizi scored FDA approval for treating plaque psoriasis. AbbVie is evaluating both drugs in late-stage studies targeting other autoimmune diseases, as well.

It also claims other products with strong sales growth, notably including blood cancer drugs Imbruvica and Venclexta and antipsychotic drug Vraylar. In addition, AbbVie's pipeline features several promising late-stage candidates.

AbbVie doesn't have to generate a lot of growth to still provide a solid total return to investors because its dividend yields around 5.2%. The company is also a Dividend Aristocrat, with 47 consecutive years of increasing its dividend.

2. Bristol Myers Squibb

Bristol Myers Squibb (BMY 2.31%) is another big drugmaker you can buy at a bargain price. It claims a forward earnings multiple of 7.8. Probably the main reason for this low valuation is that the company faces the prospects of sales declines for blockbuster drug Revlimid beginning in 2022, when generic versions become available in limited volumes.

However, I don't think there's much reason to worry about BMS. The company's current lineup includes multiple blockbuster stars headlined by blood thinner Eliquis, cancer immunotherapy Opdivo, and multiple myeloma drug Pomalyst. BMS' newer drugs should also soon begin to kick in significant sales, especially multiple sclerosis therapy Zeposia and anemia drug Reblozyl.

The big pharma company's pipeline is loaded with potential winners. BMS hopes to significantly expand the number of Opdivo's approved indications. It's evaluating Zeposia in late-stage studies targeting Crohn's disease and ulcerative colitis. The company also has promising cancer cell therapies with ide-cel and liso-cel, plus a lot of other solid candidates.

Wall Street analysts think that BMS will deliver average annual earnings growth of more than 18% over the next five years. Add to that growth the drugmaker's dividend yield of 3%, and you've got a stock that should be a big winner for investors.

3. CVS Health

CVS Health's (CVS -0.48%) shares trade at 7.7 times expected earnings. This low valuation stems in part from uncertainty about the COVID-19 pandemic. The potential for increased competition in the pharmacy business from e-commerce giant Amazon is also a big factor.

The company is no longer just in the pharmacy business, though. Thanks to its acquisition of Aetna in late 2018, CVS Health now views itself as "a different kind of health company" with the ability to deliver a wide range of health solutions unmatched by rivals.

This broad scope should enable CVS Health to hold its own against current and future challengers. As for the COVID-19 pandemic, CVS Health CEO Larry Merlo stated in the company's Q2 conference call that the coronavirus outbreak is driving the company "to bend our innovation curve markedly and accelerate solutions that will have long-term sustainability."

Analysts aren't gung-ho about CVS Health's growth, forecasting average annual earnings increases of a little over 6% over the next five years. But the company also offers a dividend yield of 3.5% to entice investors. With its share price at current levels, CVS Health -- like AbbVie and Bristol Myers Squibb -- appears to be a cheap stock to buy now and hold for the long term.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Keith Speights owns shares of AbbVie, Amazon, and Bristol Myers Squibb. The Motley Fool owns shares of and recommends Amazon and Bristol Myers Squibb. The Motley Fool recommends CVS Health and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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