A lot of folks out there are worried about the state of the stock market. The August crash shook investor confidence, and Wall Street went from hoping the Dow could cross 13,000 for the first time since 2008 to hoping the benchmark didn’t fall back to 2009 lows.
But buy-and-hold investors shouldn’t be too concerned with the gyrations of the market over the past several weeks. Yes, the broader stock market remains about 10% lower than where it was at its July peak, but the long-term trend of the market remains clearly upward since the financial crisis lows of 2008 and 2009.
That means if you have some extra cash lying around, you might want to consider bargain hunting after the recent pullback. Make no mistake: Some companies were sold off for a reason. But by limiting yourself to big-name blue chips with stable businesses and decent dividend yields, you can ensure your portfolio will withstand any short-term volatility and likely come through with a handy profit a few years down the road.
Here are five such low-risk investments that I think are bargains for long-term investors right now:
One of the biggest blue chips out there is AT&T (NYSE:T). The company boasts a $175 billion market cap, almost $125 billion in annual revenue and an entrenched position in the telecom industry.
So what’s to like about AT&T? For starters, the dividend. Shares boast a yield of about 5.8% right now to mark the best the Dow Jones components have to offer. Ten-year T-Notes offer about 2.2% right now and most “high-yield” savings accounts and CDs are even less, so the income potential of AT&T alone puts it in an attractive category given the lack of alternatives.
What’s more, shares still are 7% off their July peak despite the market’s rebound from August lows and are right in the middle of AT&T’s 52-week trading range between about $26.50 and $32. It’s reasonable to expect AT&T to break through previous highs — especially if merger plans with T-Mobile win approval and further strengthen the company’s grip on the smartphone market with what could become a 42% market share. On the downside, AT&T dipped down to as low as $22 in March 2009, but aside from a week or two in July 2009, it never again closed beneath $24. Even if you’re afraid the market will retest the financial crisis lows, AT&T stood tall then and will do so again.
In the depths of the brutal 2008-09 selloff, Cisco (NASDAQ:CSCO) flopped from around $25 per share to briefly bottom out under $14. As of this writing, shares are hovering in the low $15 range.
Yes, investors have had good reason to sell off CSCO stock in recent months as Juniper Networks (NYSE:JNPR) has elbowed into the corporate marketplace, and bloated operations have stifled Cisco’s ability to adapt to the cloud computing revolution. But there are reasons to be optimistic CSCO is righting the ship. In the past year, there has been a big management shakeup, thousands of layoffs and production changes that include a shift away from consumer offerings of its DVR and Flip video camera manufacturing. The turnaround might come at the perfect time for investors who buy in during the current mayhem.
Wall Street insiders seem to think things are turning around at Cisco. According to 36 “experts” surveyed by Thomson/First Call, the median target is $19.02 on CSCO and the median is $18. That’s roughly 15% to 25% above current valuations. Not setting the world on fire, but in this difficult market those are gains most investors would be satisfied with.
Maybe that’s why both Stifel Nicolaus and Wunderlich both upgraded CSCO to “buy” on Aug. 11 after earnings, with targets of $17 and $20, respectively.
What’s more, Cisco began offering a decent dividend in March and currently boasts a yield of about 1.7%. In this environment, investors should be wary of any stock that doesn’t offer a dividend and stick with cash-rich blue chips like Cisco.