If you jump on the bandwagon of a stock that's been rising sharply in value this year, you run the risk of buying something that's overpriced and just not a good investment. Instead, if you go against the grain and look for stocks that investors aren't so crazy about, you'll be more likely to find some bargains out there.
Pfizer (PFE -1.46%), ViacomCBS (PARA -3.61%), and Bank of America (BAC -0.20%) are all underperforming the S&P 500, which is up over 6% this year, but that doesn't mean they're bad investments. Now could be a great time to buy them, as they're cheap and possess lots of potential growth.
1. Pfizer
A big reason Pfizer's an attractive buy is that it's working on a COVID-19 vaccine with BioNTech (phase 3 trials began in July and the results could be available before the end of the year), and it's one of the safer healthcare stocks to invest in. There's not a lot of risk for investors if the company fails to develop a successful vaccine, as Pfizer would still make for a great long-term investment. And on the flip side, if its vaccine candidate is successful, it could stimulate lots of bullishness (not to mention billions of dollars in additional revenue) and send the stock on a positive trajectory -- it's currently down 6% year to date.
Pfizer's recorded a profit in eight of its last 10 quarterly results, demonstrating strong consistency over the years. While investors may be unimpressed with the company's lack of growth -- sales of $51.8 billion in 2019 were down over 3% from the previous year -- there's reason for optimism. And that's because the company is spinning off its Upjohn business later this year.
Image source: Getty Images.
Although Pfizer will be a smaller company after the spinoff, it will allow the New York-based drugmaker to focus more on growth and on developing new medicines. That, in turn, could make it a more appealing long-term investment, especially for growth-oriented investors. In its most recent quarterly results, which Pfizer released on July 28 for the period ending June 28, its sales of $11.8 billion were down 11% year over year. But the biggest drag on the top line was its Upjohn division, which features its off-patent drugs. It generated just over $2 billion in revenue -- down 32% from the prior-year period. And when looking at the first six months of the year, the segment's sales are down 35%. Pfizer's biopharma segment, however, is up 7% this year and makes up the bulk of the company's revenue.
Today, Pfizer's stock trades at a forward price-to-earnings (P/E) ratio of 12. Although that's about where it was a year ago, factoring in the potential of a successful COVID-19 vaccine makes this a potential bargain buy.
2. ViacomCBS
Another good value stock to consider adding to your portfolio today is ViacomCBS. The media and entertainment company is down 30% this year, as it fell sharply in March during the market crash to a low of just over $10. Even though it's tripled since those lows, it's still nowhere near where it started 2020. But for value investors, that makes this an attractive buying opportunity. The stock's trading at a forward P/E of six, while investors are paying a multiple of more than 15 for rival Comcast.
This is another New York-based business that could have a lot of growth on the horizon. COVID-19 heavily affected its second-quarter results, as companies were spending less on ads. When ViacomCBS released its Q2 results on Aug. 6 for the period ending June 30, its sales of $6.3 billion were down 12% year over year. Advertising revenue of $1.9 billion declined by 27% and was the most notable drop in the company's sales. But with sports leagues starting back up in recent months, that should help give those numbers a boost next quarter.
ViacomCBS is also rebranding its subscription streaming service, CBS All Access, into Paramount+. It will be launching it into multiple international markets next year. With more content available, it can help generate more revenue for the company. In Q2, ViacomCBS reported revenue of $489 million related to its streaming and digital video, up 25% from the previous year. And the number of pay streaming subscribers rose 74% to 16.2 million. (Netflix, in contrast, has more than 192 million paid subscribers around the world as of its most recent quarterly results.)
3. Bank of America
It's not a popular time to be buying banks, not with a recession and pandemic going on. But that's also why it's a perfect time to do so, because values are low. Warren Buffett's Berkshire Hathaway is still holding on to its 12% stake in Bank of America despite the current economic challenges.
Shares of the top bank stock are down 28% this year, as low interest rates and a poor economic outlook aren't giving investors many reasons to buy the stock. But with Bank of America stock trading at a forward P/E of 11 and below its book value, investors can get a lot of bang for their buck with this investment. Prior to 2020, the last time Bank of America stock was trading this low was during the market crash in the fall of 2018, when it fell below $24.
Through the first six months of 2020, Bank of America has set aside $9.9 billion in provisions for credit losses, as it anticipates a tough road ahead for the economy. A year ago, its year-to-date provision stood at just $1.9 billion. That $8 billion increase is the reason why the bank's year-to-date profits of $6.8 billion are half of what they were this time last year.
Although it's coming off some disappointing quarterly results due to the provisions, the bank will bounce back. It may take some time, but over the long run Bank of America's stock can deliver some great returns for investors who are willing to hang on as the economy gets back to its pre-COVID levels.
Which stock is the best buy right now?
Before deciding which of these investments looks best today, let's first recap how they're doing against the S&P 500 this year:
Although they're all underperforming right now, that doesn't mean things will stay that way. And the stock that looks most attractive today is Bank of America. It's hard to argue going against a stock Berkshire Hathaway has such a large stake in. It's also a stock that's likely to recover along with the economy, and its cheap value today makes it a hot buy.
