The stock markets may be near all-time highs, but there are countless high-quality large-cap stocks to buy that keep getting pushed lower, simply haven’t risen with the rest of their peers or remain grossly underpriced despite recent gains.
It is absolutely inexcusable that some of these stocks keep flying under the radar as screaming buys. Much of Wall Street hasn’t noticed, but the value and upside are too apparent for anyone just willing to look.
This fact almost guarantees that two years from now, each of these noted securities will have outperformed the market.
With that said, I have seven stocks to buy that are beaten-down, disrespected and poised to beat the market in the years to come. You’ve heard of every one of these names, but you might not be familiar with the great value case at play right now.
Deeply Underloved Stocks to Buy: Gilead Sciences (GILD)
The fact that Gilead Sciences, Inc. (NASDAQ:GILD) stock trades at $78 per share and less than 7 times earnings is insulting to the intelligence of investors.
No, Gilead’s blockbuster HCV franchise is no longer responsible for billions of dollars in new revenue each year. And no, Gilead has not completed its next game-changing acquisition.
However, despite Harvoni’s rapid sales decline, its drugs Sovaldi, Truvada, and Viread are still performing well enough to keep Gilead’s total losses at a minimum. Analysts expect sales to decline 6% this year and 3% next year. That’s not too bad for a company with $30 billion in annual revenue.
Furthermore, Gilead may go through several years of mid-single-digit revenue losses, but with operating margins over 60%, it will still generate lots of cash and create shareholder value.
Personally, I think GILD is the most attractive acquisition target in all of healthcare. But even if Gilead isn’t acquired, it can create long-term value from buybacks, future dividends and, of course, acquisitions of its own.
Deeply Underloved Stocks to Buy: AT&T (T)
AT&T Inc. (NYSE:T) isn’t exactly beaten-up. In fact, it’s only 6% off its high and has soared at a whopping 19% this year alone.
And it’s still a value!
AT&T trades at just 15 times free cash flow with a nearly 5% dividend yield. You don’t find many opportunities like that in a market like this.
Dividend stocks in just about every other industry are overvalued. Consider that Procter & Gamble Co (NYSE:PG), which yields just 3%, is trading at 21 times free cash flow. Further, many of the stocks that Wall Street considers top dividend plays continue to trade at multiyear highs — and many of those, like Exxon Mobil Corporation (NYSE:XOM), have real macro risks.
AT&T is a company with strong future earnings potential because of Mexico, Latin America, 5G and the Internet of Things. Its free cash flow is only going to grow larger. With its dividend costing less than $12 billion annually to maintain, that growth in free cash flow will continue to create long-term shareholder value.
Deeply Underloved Stocks to Buy: Apple (AAPL)
It’s likely that no stock is more disrespected than Apple Inc. (NASDAQ:AAPL).
And it’s possible that no stock offers more short-term upside.
Apple currently is off 20% from its all-time high. That loss is largely tied to its expected 8% decline in overall revenue this year.
At less than 12 times free cash flow, AAPL is poised to surge as the next generation of iPhones spark top-line growth over the next year. So while Apple’s 8% loss in 2016 has not been pleasant, it gives the company some favorable comps for 2017. Given that iPhone “s” units are always in less demand than next-generation iPhones, investors can assume that 2017 will showcase considerable year-over-year growth — likely far better than the 4% growth that analysts expect.
That means a lot of potential rocket fuel for Apple shares.
Deeply Underloved Stocks to Buy: Kroger (KR)
Grocery retail is a segment of the economy that performs well regardless of the market. Within that segment, Kroger Co (NYSE:KR) has been the leader.
Kroger has grown identical supermarket sales for 50 consecutive quarters, and has stolen market share from the likes of Wal-Mart Stores, Inc. (NYSE:WMT) while pushing smaller players like Whole Foods Market, Inc. (NASDAQ:WFM) aside. Despite its very impressive past growth, Kroger is on pace for 5% growth in each of the next two years as it enters new businesses like specialty pharma and online/mobile grocery.
If there is one company that should not be questioned, it is Kroger. Therefore, it is a bit odd that analysts see deflation and pricing pressure as a big risk for the grocery retailer. Yes, it is a concern, but if any company can weather the storm, it is Kroger.
There is simply no reason for KR to be trading 24% off its 52-week high. This is long-term value just waiting to be snapped up.
Deeply Underloved Stocks to Buy: Walgreens Boots Alliance (WBA)
Walgreens Boots Alliance Inc (NASDAQ:WBA) is another stock with recent losses — it’s down 16% from its 52-week high — that I can’t explain
While some of the pressure is likely political, investors must realize that no matter what happens with the Affordable Care Act, no politician is going to rip healthcare away from the millions who are now insured thanks to Obamacare. Any change will be for future enrollees.
With that said, WBA is the king of retail pharmacy here in the U.S., but it is quickly building end-to-end solutions for the entire pharmaceutical space. When it successfully acquired Boots, it gained pharmaceutical wholesale and with a 23.9% stake in AmerisourceBergen Corp. (NYSE:ABC), it has distribution and sourcing incentives.
After it absorbs Rite Aid Corporation (NYSE:RAD), Walgreens will grow its retail presence, but the bigger catch may be the gain of EnvisionRX through RAD, a pharmacy benefit manager, to compete with CVS.
In other words, Walgreens is a complete play on healthcare, and at 16 times free cash flow, WBA trades well below fair value.
Deeply Underloved Stocks to Buy: Bank of America (BAC)
Bank of America Corp (NYSE:BAC) has had a great month after rallying 11%. However, it still is down 10% from its 52-week high, and it still presents a good buying opportunity.
Investors have been skeptical of big banks since the housing crisis, but now there are countless reasons to own BofA in particular. Not only has the company’s earnings been solid, but it recently passed its stress test. This gave BAC approval for a far more significant dividend and share repurchase plan. These developments are why BAC stock has recently surged higher, and will continue to do so.
While it is hard to predict the Fed’s action with interest rates, we all know the Fed wants to raise interest rates. No industry benefits more than banking, and no stock is better positioned or cheaper to gain from interest rate hikes than BofA. Collectively, it is a great time to own BAC.
Deeply Underloved Stocks to Buy: Dollar Tree (DLTR)
Dollar Tree, Inc. (NASDAQ:DLTR) has fallen 13% over the last month. The losses are in response to earnings that did not meet high expectations.
Investors must realize that DLTR is not a quarter-to-quarter kind of business, but operates year-to-year with little regard for Wall Street and a long-term vision. What it accomplished with Dollar Tree retail stores before Family Dollar is simply incredible — to achieve a higher margin than any of its competitors with a $1 cap. I doubt any other retailer could be profitable with Dollar Tree’s business model.
That’s why DLTR might ultimately be the best performing stock on this list 10 years from now as margins, revenue, and its stock multiple rises over time.
Further, if Dollar Tree can earn the highest margins of its competitors with a $1 cap, including Walmart, then just think of what it can do without that cap in an equally large Family Dollar!
It will take some time, and some growing pains, but history proves that DLTR will make all current investors who hold look like geniuses 10 years from now.
As of this writing, Brian Nichols was long AAPL, BAC, DLTR, GILD and T.