With September coming to an end, I have to begin thinking of a new stock to buy in the month of October. Over the past several weeks we haven’t seen much movement in the broader market. We are still near all-time highs and overvalued stocks are everywhere. With the Fed cutting rates, a previously inverted yield curve, and ongoing trade tensions; we have plenty to be concerned about. However, there are pockets of value and opportunity! Last month I added Abbvie and Altria, both battered by negative headlines. For October, I brainstormed three potential buys. The first stock is relatively low risk, the 2nd moderate, and the last, high risk…
Starbucks is a leading retailer and roaster of specialty coffee. The company has 15,123 licensed stores worldwide. In the United States its hard to go a few miles without seeing a Starbucks. In addition, the company sells whole bean coffee through authorized distributors. The company has been on a tear recently with the stock nearly doubling year-over-year. Unlike the next two stocks mentioned, SBUX is not on a deep discount. Because of the run-up in price, investors only receive a dividend of 1.7%. However, revenue and earnings have been surging in recent years. Debt is low, at just over $11 billion and earnings are expected to grow 16% in fiscal 2019. SBUX has a P/E of 32 and a PEG ratio of 2.7. So even when factoring in growth, this company is expensive! Even so, SBUX’s earnings are unlikely to be affected by trade conflicts, recessions, or political unrest.
For the moderate risk company, we have Verizon Communications (VZ). Verizon is a diversified telecom company with a network spanning 298 million people. The company currently has 98.2 million subscribers. Verizon is also the largest provider of print and online directory information. Overall, the majority of Verizon’s revenue comes from its wireless business (76%). The company currently pays a 4.08% dividend, holds a P/E of 15.7, and has been trading nearly flat over a 5-year period. The company has flatlined due to increasing competition. With Verizon trading near its 15-year median P/E, VZ appears to be at least fairly valued. With minimal growth I can see VZ being considered for its current yield. The income factor can play a strong role in a well-diversified portfolio!
CVS Health (CVS)
Finally, on the high-risk side we have CVS Health (CVS). CVS is one of the largest integrated healthcare services providers in the country. The company is a combination of retail, pharmaceuticals, insurance, and even doctor’s offices. CVS fills more than 1 billion prescriptions annually and has 9800+ locations in 42 states, Puerto Rico, and the District of Columbia. The company has been aggressive with its acquisitions with it recently purchasing health insurer, Aetna. Earnings were growing quickly in recent years, with growth slowing in 2019. The company carries a generous 3.2% dividend yield and a low payout ratio of 30%. CVS does however carry a high amount of debt ($71 billion) from all its acquisitions. Because of the high debt, earnings stagnation, and political risk CVS is down significantly from its 2015 high ($112). With a P/E of only 9 the company is priced like its going out of business. Given the headwinds CVS is a risky buy, but is one of the only fully integrated healthcare providers in the U.S. If investors are willing to weather the storm, CVS could provide a sizeable return.
DISCLAIMER: I am long on VZ, CVS and SBUX. I am not a licensed investment adviser or tax professional. I am not liable for any losses incurred by any parties. This blog should be viewed for entertainment and/or educational purposes only. Any transactions published are not recommendations to buy or sell any securities. Please consult with an investment professional before making investment decisions.