September is usually the worst month for stocks. Many investors either reap their summer profits or dump their losers to harvest tax losses, while fund managers follow the same trends to clean up their portfolios.
This September could be even tougher because we're in the midst of a bear market with rising interest rates. However, I believe investors can survive this challenging month by sticking with high-yielding blue-chip tech stocks that are trading at bargain-bin valuations. These three stocks fit the bill: AT&T (T 1.15%), Cisco Systems (CSCO 0.19%), and HP (HPQ 0.55%). Let's find out a bit more about them.
AT&T reversed its ill-fated media expansion by spinning off DirecTV, WarnerMedia, and its other noncore assets over the past year. Today, AT&T is a more streamlined telecom company focused on expanding its core 5G and fiber networks.
AT&T now expects its wireless service revenue, which accounted for more than half of its top line last quarter, to rise by as much as 5% this year. It expects its total revenue to grow by the low single digits and for its adjusted earnings per share (EPS) to increase 0% to 2%.
AT&T's growth rates might seem anemic, but it's finally growing at a slow, steady, and predictable clip again instead of burning billions of dollars chasing the volatile pay-TV and streaming media markets.
The company reduced its dividend after spinning off Warner Bros. Discovery, but it still pays a hefty forward dividend yield of 6.3%. It notably reduced its full-year free cash flow (FCF) guidance from $16 billion to $14 billion last quarter due to issues with delayed customer payments, higher investments, and lower business wireline margins, but it can still easily cover its planned dividend payments of about $8 billion this year.
AT&T might lack any near-term catalysts, but its stock trades at just seven times forward earnings. That low valuation and high yield should limit its downside potential and make it a reliable safe-haven stock this month.
2. Cisco Systems
Cisco's revenue and adjusted EPS rose 3% and 4%, respectively, in fiscal 2022 (which ended in July). It started the year fairly strong, but its year-over-year growth flatlined in the second half of the year as its sales of networking switches, routers, and other products were throttled by supply chain disruptions.
Cisco partly offset that slowdown with the growth of its cybersecurity services and enterprise software, and it expects those storm clouds to clear throughout fiscal 2023. It claims its hardware sales have been held back by supply constraints instead of demand constraints, and it expects its growth to accelerate once the supply chain headwinds weaken again.
So for fiscal 2023, Cisco expects its revenue and adjusted EPS to both rise by 4% to 6%. That acceleration would put it back on track to achieve its long-term goal -- which it introduced during its investor day presentation last September -- of growing its annual revenue at a compound annual growth rate (CAGR) of 5% to 7% between fiscal 2021 and fiscal 2025.
Cisco's stock trades at just 13 times forward earnings, and it pays a forward dividend yield of 3.4%. It spent less than half of its FCF on those dividends over the past 12 months, and it's raised its payout annually for over a decade. Cisco might not generate any massive near-term gains, but it's a safe place to park your cash to generate some extra income.
HP's stock lost more than a quarter of its value this year as investors fretted over its slowing sales of consumer PCs in a post-lockdown market. However, that sell-off reduced HP's forward multiple to seven while boosting its forward yield to 3.6%.
HP's PC and printing revenues both declined year over year last quarter, and analysts expect that slowdown to persist through fiscal 2023 (which will start at the end of October). But as HP's sales growth stalls out, it remains committed to reining in its operating expenses, returning more than 100% of its annual FCF to its investors through buybacks and dividends, and diversifying its business with fresh investments. That's why HP recently acquired Poly, a producer of audio and video conferencing products, for $3.3 billion to upgrade its PCs for remote and hybrid workers.
HP expects its adjusted EPS, which includes Poly, to rise 6% to 9% this year. It also expects Poly to be accretive to its revenue, adjusted operating profits, and adjusted EPS throughout fiscal 2023. That outlook seems stable, but HP's stock should remain out of favor until it fully laps its current slowdown in the consumer PC and commercial printing segments.
That said, I believe HP's low valuation, high yield, and commitment to big buybacks all make it a safe stock to hold in this tough market.