I hope you enjoy roller coasters, because that's pretty much what 2020 has been for the stock market. Numerous records have been broken, including the steepest bear market decline of at least 30%, the quickest rebound to new all-time highs in history, and the highest reading for the CBOE Volatility Index.
But as seasoned investors will tell you, periods of heightened volatility are historically great times to go shopping. That's because every bear market decline or stock market correction in history has eventually been erased by a bull market rally.
With the understanding that the major U.S. stock indexes tend to rise in value over time, I did a little shopping in the third quarter. A nibbler by nature, I love the fact that I can buy new stocks or add to existing holdings as often as I'd like without piling up commission costs (my online brokerage is one of many that's gone commission-free).
I wasn't chasing high-growth tech stocks during Q3. Rather, the three companies I bought or added to are what I'd classify as boring but beautiful businesses. These companies often pay a dividend, are generally profitable, have time-tested operating models, and don't cause me to lose any sleep.
Without further ado, here are the three boring but beautiful businesses I purchased in Q3.
Walgreens Boots Alliance
Typically, healthcare stocks do just fine during recessions. Health is a concern whether the economy is performing poorly or well, so demand remains constant. But this hasn't been the case for Walgreens, which has been pummeled by weaker foot traffic because of the coronavirus disease 2019 (COVID-19) pandemic.
However, a long-term turnaround plan has been set in motion, and the valuation was far too tempting to pass up.
Arguably the biggest change we're going to see with Walgreens Boots Alliance is the company's focus on becoming a one-stop healthcare destination. The company is partnering with VillageMD to install up to 700 full-service doctor's offices co-located at its stores, combining primary care and pharmacy solutions. This model keeps customers within its ecosystem of products and services, and (more importantly) gives Walgreens an advantage with patients who have chronic illnesses.
Another key attribute of the Walgreens turnaround story is the company's investments in digitization. The plan is to have more products available for mobile order pickup, as well as to expand the company's rapidly growing direct-to-consumer offerings.
Ultimately, Walgreens' forward P/E of 7 and 5.3% dividend yield proved too enticing. Don't forget that Walgreens is a Dividend Aristocrat with a 44-year streak of boosting its payout.
Two of the three companies on this list I purchased during the stock market's September swoon, but I opened a new position in storage solutions company Western Digital (WDC) during its mid-August swan dive.
Western Digital, which develops and manufactures various hard-disk drives (HDD) and solid-state drives, has struggled for more than a year with industry oversupply, pricing pressure, and recent demand concerns tied to COVID-19. The company even suspended its dividend in order to save close to $600 million a year, which will give it more financial flexibility to pay down its approximately $6.9 billion in net debt.
But despite the fact that the company kissed its dividend goodbye, I see a lot to like over the next five years.
In the shorter term, the gaming console cycle should prove fruitful for Western Digital. Video game consoles tend to last for years, so new introductions can be few and far between. However, we're on the upswing when it comes to consoles, with Sony's PS5 and Microsoft's Xbox Series S and Xbox Series X getting released in November. Sophisticated new consoles will require stronger storage solutions, which should put some pep in Western Digital's step over at least the next year or two.
What really excites me about this generally boring and highly cyclical company, though, is the fact that it has tie-ins to cloud computing. Western Digital isn't making the software that powers the cloud, but it is responsible for the growing data solution needs of enterprise data centers. The coronavirus pandemic has demonstrated how important it is for businesses to have an online and/or cloud presence. That means ever-growing demand for corporate data centers and data storage.
For now, Western Digital's HDDs are mainstays in enterprise data centers. But by mid-decade, the company's NAND flash memory drives could become the go-to solution for enterprise data centers.
The last boring but beautiful stock I bought during the third quarter is telecom giant AT&T (T -0.47%). Unlike Walgreens and Western Digital, AT&T was already a holding in my portfolio, so this purchase merely added to my existing stake.
While the benchmark S&P 500 has regained everything that was lost during the first-quarter wipeout, AT&T's share price is down almost 27% since mid-February and is nearing a nine-year low. Much of the skepticism surrounding AT&T boils down to persistent declining subscriber counts for subsidiary DIRECTV, as well as its monstrous debt load following the 2018 acquisition of Time Warner.
I freely admit that AT&T isn't the growth stock it once was. But it's also a big-time moneymaker that has more catalysts in its sails than you might realize.
For example, AT&T has been spending big on rolling out 5G wireless infrastructure nationwide. This rollout isn't going to happen overnight, but we're talking about the first major upgrade to wireless download speeds in a decade. Consumers and businesses are going to jump at the opportunity to take advantage of faster download speeds, especially with data consumption on the rise. My expectation is that we'll see a multiyear uptick in organic growth for AT&T's higher-margin wireless division.
I'm also encouraged by the late-May launch of streaming service HBO Max. During its first month post-launch, HBO Max signed up roughly 4.1 million subscribers. This means that HBO and HBO Max combined had 36.3 million subscribers at the end of June. AT&T's management team believes this figure can reach 80 million by 2025.
Finally, management has taken steps to address debt by selling noncore assets, temporarily halting share buybacks, and considering the sale of DIRECTV. The company's rock-solid dividend, which is currently yielding 7.35%, remains intact. At this yield, you can double your money with reinvestment in less than a decade.