As the bear market drags on and interest rates continue to rise, it might seem safer to simply pour all of your cash into high-yield CDs and savings accounts or in government bonds instead of in stocks. While that strategy might shield your savings from the near-term volatility, you'd also likely miss out on some life-changing gains over the next few years or decades.
So unless you plan to retire soon, it's still a good time to buy a few good stocks. Here are three blue-chip plays that are no-brainer buys for long-term investors: AT&T (T 1.88%), Fortinet (FTNT 1.00%), and Taiwan Semiconductor Manufacturing (TSM -0.34%), better known as TSMC.
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AT&T
AT&T's streamlined business model, stable growth rates, high dividend, and low valuations make it an ideal investment in this choppy market. Over the past two and a half years, AT&T reversed its misguided media ambitions by spinning off DirecTV, divesting WarnerMedia through a merger with Discovery to create Warner Bros. Discovery, and selling its smaller media subsidiaries. It also divested its other non-core assets and real estate to strengthen its core telecom businesses.
In 2022, this slimmed-down AT&T gained 2.9 million postpaid phone subscribers, while its larger competitor Verizon Communications only gained 201,000 new postpaid phone subscribers. The growth of AT&T's consumer wireline business, which was driven by the expansion of its high-speed fiber networks, also partly offset the slower growth of its business wireline segment.
AT&T expects its annual free cash flow (FCF) to rise by at least $2 billion to over $16 billion in 2023. That flood of cash easily covered its $9.9 billion in dividend payments in 2022 and protects its forward yield of 5.8%. For 2023, analysts expect its revenue to rise 2%, but for its adjusted earnings per share (EPS) to dip 5% as its profits are squeezed by higher pension costs and tax rates.
But excluding those expenses, AT&T's adjusted EPS would likely rise about 1%. Those growth rates might seem anemic, but its stock also looks dirt cheap at 8 times forward earnings. That low multiple should limit its downside potential and make it a good safe haven play as the bear market drags on.
Fortinet
For investors who are hungry for more growth, cybersecurity companies are a good bet -- since large companies generally won't lower their digital defenses to save a few dollars. But in this wobbly bear market, investors should stick with profitable cybersecurity leaders like Fortinet -- which provides end-to-end protection services through a mix of on-site appliances, software applications, and cloud-based services -- instead of unprofitable hypergrowth companies.
Fortinet's first product was Fortigate, a next-gen firewall that upgraded traditional firewalls by adding network filtering tools. That firewall became the foundation of its Security Fabric, which provides a wider range of services for about 635,000 customers worldwide, including most of the Fortune 500. In 2022, Fortinet's revenue rose 42%, its billings climbed 34% to $5.6 billion, and its EPS grew 45% on a generally accepted accounting principles (GAAP) basis. Its FCF rose 21% to $1.45 billion, and it spent more than 100% of that cash on buybacks.
It also aims to generate $10 billion in annual billings in 2025, which would represent a compound annual growth rate (CAGR) of 21% from 2022. Assuming its revenue and earnings keep pace with its billings, its stock could easily double in just two years. Fortinet's stock isn't cheap at 43 times forward earnings, but it's clearly a "best in breed" cybersecurity play that will continue to thrive through both bear and bull markets. That resilience easily justifies its higher valuation.
TSMC
TSMC, the world's largest and most advanced chip foundry, is also still a great long-term play on the secular expansion of the semiconductor market. It manufactures the world's smallest, densest, and most power-efficient chips for "fabless" chipmakers like Apple, Advanced Micro Devices, and Qualcomm, and it remains at least one or two generations ahead (in terms of transistor density) of its closest competitors Samsung and Intel.
That market dominance makes TSMC a bellwether of the global semiconductor market. TSMC's revenue and earnings per ADR rose 43% and 70%, respectively, in 2022, but it expects its growth to decelerate in the first half of 2023 as the PC and data center markets cool off in a post-pandemic market. However, TSMC still expects the market to stabilize and recover in the second half of the year. For the full year, analysts expect its revenue to grow by 2% as its earnings decline by 14%.
In 2024, TSMC's growth is expected to accelerate again as the macro environment improves, the supply/demand balance is restored, and it accelerates its production of its next-gen 3nm chips. Its continued installation of ASML's top-tier extreme ultraviolet (EUV) lithography systems, which etch the circuit patterns for its smallest chips, should also keep it far ahead of Samsung and Intel. TSMC stock trades at just 15 times forward earnings, and it pays a decent forward dividend yield of 2.5%. That low valuation and high yield should limit its downside potential until the semiconductor market warms up again.
