If you want to generate significant long-term gains in the stock market, one place to start looking for investments is among the companies that Wall Street isn't all that thrilled with today. In the short term, these may not be good performers, and they may not have looked like great buys in recent months or years. But there can be winners to be found among cheaply valued stocks. The trick is to pick out the diamonds in the rough that have a lot of upside potential in the long run.
Verizon Communications (VZ +0.52%), Toronto-Dominion Bank (TD +0.55%), and Pfizer (PFE +1.16%) look like steals at their current levels. In the past three years, they have all fallen by 20% or more. But here's why I'd consider buying them right now.
Verizon Communications
Verizon's stock has started to rally over the last 12 months -- it's up by around 6% during that stretch. There have been some signs of improvement in the telecom giant's business, but I think the share price gains had more to do with investors' optimism about the possibility of falling interest rates. That's because if interest rates decline, Verizon's hefty debt load will be less costly. Moreover, its dividend yield, which is up to 6.2% right now, looks incredibly attractive.
NYSE: VZ
Key Data Points
In 2024, Verizon generated just single-digit percentage top-line growth, and management is projecting much the same for 2025, with wireless service revenue expected to rise between 2% and 2.8% for the full year. More important for dividend investors is that its free cash flow will be between $17.5 billion and $18.5 billion, which is far higher than the $11.2 billion it paid out in dividends over the past year.
Verizon stock performed poorly in recent years due in large part to rising interest rates -- its business is still in good shape. It's not a growth beast, but it never was. As an investment, it's largely a dividend play, and although it may be some time before interest rates decline further due to the shifting macroeconomic outlook, they are likely to fall in the long run. Buying the stock while its yield remains high and it's trading at a forward price-to-earnings (P/E) multiple of just 9 could eventually prove to be a great move for buy-and-hold investors.
Toronto-Dominion Bank
At the current stock price, Toronto-Dominion Bank's dividend yields 4.9% -- a fairly high yield for a top financial institution. Investors have been down on the stock since the bank was hit with a $3 billion fine last year after the Canada-based institution pleaded guilty to charges that it failed to prevent money laundering by criminal enterprises. U.S. regulators also capped the size of its U.S. retail banking operation at its 2024 level indefinitely. That will undoubtedly weigh on its near-term prospects.
NYSE: TD
Key Data Points
However, I'm optimistic that as the bank does the necessary work of building effective anti-money-laundering controls and satisfies regulators, it can and will recover in the long run. Aggressive growth tactics and lax oversight policies are unfortunately not new issues for the banking industry. The impact of this set of failures is unlikely to cripple TD's future.
Investors are down on TD now, which is why the stock trades at a forward P/E of just 11. At that cheap level, it could be another promising stock to buy on weakness.
Pfizer
Healthcare company Pfizer is paying investors a dividend that yields 6.5% at its current share price. That's an exceptionally high payout for a blue-chip healthcare stock. The markets aren't feeling all that optimistic about the healthcare industry under the Trump administration, especially with vaccine skeptic Robert F. Kennedy Jr. serving as the secretary of Health and Human Services. Vaccines are a big part of Pfizer's business, and uncertainty about what this administration will do next has kept the stock cheap. It trades at a forward P/E of just under 9.
The business itself is still doing well, however. Pfizer's revenue rose by 12% operationally last year when excluding the impact of its COVID-19 vaccine and antiviral pill. Some investors can't see past the company's COVID-19 business, but Pfizer has over 300 approved drugs and a pipeline of 115 drug candidates. It even has an exciting weight loss drug candidate, danuglipron, which could prove to be a growth catalyst.
NYSE: PFE
Key Data Points
Even given the uncertainties ahead, Pfizer likely deserves a higher valuation than it trades at today. Investing in it will require some patience, but the payoff could be substantial, given its modest price tag.
