Good companies don't go on sale very often. When they do, you usually have to buy when there are near-term negatives weighing down the shares. Basically, you need to hold your nose when you hit the buy button.
But if you can stomach investing when others are fearful, you might want to look at Texas Instruments (TXN 5.64%), Medtronic (MDT -1.12%), and 3M (MMM -1.05%) today. These are three of my favorite stocks at the moment.
1. Texas Instruments: Building for the future
Chipmaker Texas Instruments' dividend yield is roughly 2.8% today. That's toward the high end of the company's historical yield range and suggests that the shares are trading at a relatively cheap level. That makes sense because the cyclical chip sector is facing a weak patch. What's interesting here is that Texas Instruments is going on a spending spree ($3.5 billion a year between 2022 and 2026) as it looks to build new chip factories.
That may seem counterintuitive, but it is exactly the right thing to do in the current sector environment. Basically, Texas Instruments wants to ensure that it has enough supply for the next industry upturn. Because this technology, especially the type of relatively simple microchips the company makes, is being used in more and more applications, I would consider it a management mistake not to invest in what will inevitably be higher demand. But stock traders are focused on the here and now instead of the long-term future, which is opening up an opportunity for income-focused investors who think in decades and not days. Note too that Texas Instruments has increased its dividend annually for nearly two decades, offering another reason to invest.
2. Medtronic: This too shall pass
Medical device maker Medtronic's dividend yield is roughly 3.4%. That yield is near the highest levels in the company's history, which includes 45 years' worth of annual dividend increases (it's a Dividend Aristocrat). The problem is really company-specific, as growth has decelerated in recent years. In fact, the company's fiscal second-quarter 2023 earnings results were fairly disappointing. Both revenue and adjusted earnings were slightly lower year over year. Fewer-than-expected surgeries in certain categories were a notable issue.
However, the bigger problem dogging the stock is that Medtronic is having trouble getting a couple of new investments over the finish line in the U.S. market. Two notable headwinds are in robotic surgery and diabetes, but it seems highly likely that the delays now facing the company will be rectified over time.
Meanwhile, management is looking to spin off smaller businesses that are low margin and low growth, a move that should instantly make the rest of the business look better. It is also continuing to ink bolt-on deals that should help support long-term growth.
Business never goes in a smooth line, but healthcare giant Medtronic has proven it can ride the wave to long-term growth and I'm willing to give the company the benefit of the doubt as it deals with some near-term troubles.
3. Only for those with strong stomachs
The last name on this list is 3M, a diversified industrial company. It's probably not appropriate for risk-averse investors. That's because 3M is dealing with a number of large legal (product liability) and environmental (chemical cleanup) headwinds right now and it is hard to predict the outcome of such things. However, the uncertainty left 3M with a historically high 4.6% yield. And it has an over 60-year history of annual dividend increases behind it, making it a Dividend King. Its cyclical business, meanwhile, is holding up about as well as can be expected given the economic backdrop (organic sales grew 2% in the third quarter), so there doesn't appear to be too much reason to worry about the core operations.
Which means intrepid investors who buy in today are basically making the bet that 3M can survive the legal and environmental headwinds it is facing. On that score, 3M is an investment-grade-rated company with a $70 billion market cap. My expectation is that it can handle the financial hit while continuing to reward dividend investors for sticking around, in the general line of Altria Group when it was dealing with massive smoking lawsuits. As noted, 3M is not for really conservative investors. It is something of a special situation investment at this point. But if you are willing to take some risks, it might be worth a deeper dive.
Going where others dare not tread
There's a saying on Wall Street that you should buy when others are fearful. One way I try to find such opportunities is by looking for stocks with great dividend histories and historically high yields. That's exactly what you'll find with Texas Instruments, Medtronic, and 3M today. Sure, there are reasons for these stocks to be out of favor, but if they can work through the short-term problems, today's prices will end up looking like massive opportunities.
