Make not mistake about it: The stock market is expensive right now. The S&P 500 Shiller cyclically adjusted price-to-earnings (CAPE) ratio, which measures price divided by the average of 10 years of earnings, is near its highest level over the last decade.
With valuations so high, you might think that finding good stocks selling at discounted prices would be next to impossible. But while bargains are definitely few and far between, here are three solid stocks you can still buy on sale in a ridiculously expensive market.
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1. AbbVie
AbbVie (ABBV -0.29%) shares currently trade at less than seven times expected earnings. The big pharma stock is priced so low mainly because investors are worried about AbbVie's growth prospects once top-selling autoimmune disease drug Humira begins to face biosimilar rivals in the U.S. in 2023.
Although that's a legitimate concern, it's important to look at the big picture for AbbVie. First of all, Humira's sales will certainly decline significantly but won't evaporate overnight. More importantly, the company already has two worthy successors to Humira on the market with Rinvoq and Skyrizi. The increasing sales of these drugs will go a long way toward offsetting the lower sales for Humira that are on the way.
AbbVie also has several other products either on the market or potentially on the way that should reduce the sting of Humira's eventual fade. Cancer drugs Imbruvica, Venclexta, and Empliciti stand near the top of that list.
Granted, AbbVie isn't likely to deliver tremendous growth as it deals with the onset of biosimilar competition for Humira. However, it's a Dividend Aristocrat with a long track record of dividend hikes. And its dividend yield of 5.6% is likely to be attractive to many investors.
2. Bristol Myers Squibb
Another big drugmaker, Bristol Myers Squibb (BMY 1.23%), is also a bargain. BMS stock trades at eight times expected earnings. Like AbbVie, the company has a blockbuster drug that will face increased competition in the near future. Generic versions of blood cancer drug Revlimid hit the market in 2022.
However, those generic drugs will only be allowed to sell in limited volumes at first. That gives BMS more time for its other drugs and pipeline candidates to build momentum. Wall Street expects that's exactly what will happen: The consensus analysts' estimate projects average annual earnings growth for BMS of 22% over the next five years with continued success for blockbusters such as blood thinner Eliquis and cancer immunotherapy Opdivo.
Some of that growth will also come from other drugs that, like Revlimid, BMS picked up with its acquisition of Celgene last year. These include multiple myeloma drug Pomalyst/Imnovid, solid tumor drug Abraxane, and multiple sclerosis drug Zeposia, along with two promising cancer cell therapy candidates awaiting FDA approval -- ide-cel and liso-cel. The company's planned acquisition of MyoKardia will boost its cardiovascular pipeline and likely increase future growth prospects as well.
BMS doesn't just offer a discount valuation and solid growth prospects, though. The company's dividend yield of close to 3% provides the icing on the cake for this big pharma stock.
3. CVS Health
CVS Health's (CVS -0.01%) shares trade at a little under eight times expected earnings. The stock is cheap in part because there's some uncertainty about the future for pharmacy benefits managers (CVS Caremark ranks as one of the biggest PBMs). Also, the dynamics for the retail pharmacy business could change with the rise of online competition.
But CVS Health appears to be in a good position to navigate these challenges. The company remains innovative and won't ignore the threat from potential online rivals. In addition, aging demographic trends should drive enough demand to fuel long-term growth for CVS.
It's also important to remember that CVS Health is a major health insurer, too, thanks to its acquisition of Aetna. The company's significant presence in health insurance, pharmacy benefits management, and retail pharmacy gives it an advantage in creating solutions that lower the costs of healthcare, which should in turn attract more customers.
Like AbbVie and Bristol Myers Squibb, CVS Health also offers an attractive dividend that currently yields 3.3%. Don't expect CVS to generate jaw-dropping growth. But this stock appears to be a bargain that can deliver solid total returns over the long run.
