If you have the temptation to speculate, but are hesitant to go full bore into the madness of memes, oversold high-yield stocks to buy offer plenty of punch. Specifically, I’m focusing on well-established enterprises that just haven’t aligned with market sentiment. They may be down, but they’re certainly not out for the count.
With these ideas, you’re going to stay grounded with what you know. Arguably, all of the high-yield stocks below are household names. So, at some point, both retail and institutional investors may recognize the discounted opportunity. Along the way, you’ll pick up some passive income, basically enabling you to have your cake and eat it, too. If you’re ready to gamble the responsible way, below are oversold high-yield stocks to add to your portfolio.
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A pharmaceutical giant, AbbVie (NYSE:ABBV) draws my interest because of its acquisition of Allergan. With the buyout, AbbVie now controls Botox, which is an injection that purportedly improves appearance by relaxing the muscles that cause wrinkles. Fundamentally, as Millennials and Generation Z age and get their wrinkles, the social-media-crazed demographics should bolster demand for Botox. I see it as a long-term win-win.
Right now, though, Wall Street doesn’t see it that way. Instead, ABBV slipped nearly 9%. However, it’s up about 7% in the trailing year. Thus, it demonstrates the potential for recovering against red ink. Still, the near-term choppiness has presented a discounted opportunity for those seeking oversold high-yield stocks.
Specifically, AbbVie features a forward yield of 3.99%, well above the healthcare sector’s average yield of 1.58%. Also, the payout ratio comes in at 53.46%, which while somewhat elevated is well within reason considering the passive income. Finally, AbbVie commands 51 years of consecutive dividend increases, making it an attractive idea.
Morgan Stanley (MS)
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With so much attention paid to the financial sector – and not in a particularly encouraging way – targeting Morgan Stanley (NYSE:MS) as one of the oversold high-yield stocks to buy might initially seem excessively risky. Even with the major indices gaining relatively robustly this year, MS finds itself below parity by over 3%. Worse yet, over the trailing one-year period, shares slipped 6%.
However, Morgan Stanley might be worth a look because it’s one of the biggest financial institutions. At the time of writing, the company carries a market capitalization of $137.5 billion. More importantly, Morgan Stanley posted holistic revenue growth in its second quarter. In other words, the firm posted year-over-year increases in interest and non-interest income.
Regarding passive income, the financial giant carries a forward yield of 4.1%. That’s noticeably higher than the financial sector’s average yield of 3.18%. Also, the payout ratio sits around the sweet spot at 46.34%, meaning investors should have confidence in yield sustainability.
Southern Company (SO)
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Headquartered in Atlanta, Georgia, Southern Company (NYSE:SO) is a gas and electric utility holding firm. One of the main reasons why I like Southern, and enterprises in its field, is the natural monopoly concept. Basically, would-be competitors don’t even bother displacing utility giants because of the gargantuan barriers to entry. It’s a cynical idea, but that’s what drives SO as one of the top high-yield stocks.
Despite its practically permanent relevance, Southern hasn’t attracted much positive attention recently. Since the Jan. opener, SO is down nearly 6%. And over the trailing 365 days, shares slipped slightly over 14%. However, this is probably a blip on the radar, again because of the extraordinary relevance. Plus, you’re dealing with a market cap of nearly $74 billion.
While you’re waiting for the narrative to shift, Southern provides a forward yield of 4.13%. This comes in higher than the utility sector’s average yield of 3.75%. To be fair, the payout ratio is a bit toasty at 69.54%. Still, with 22 consecutive years of dividend increases, it’s a status management won’t want to give up on.
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Easily ranking among the most controversial ideas for high-yield stocks to buy, pharmaceutical giant Pfizer (NYSE:PFE) isn’t exactly having a great time right now. Earlier, the company helped normalize social trends by forwarding a vaccine for the SARS-CoV-2 virus. Today, it’s basically persona non grata, especially with fears of Covid-19 falling into the toilet. Subsequently, PFE shares fell a worrying 28% since the Jan. opener.
Now, I suppose that contrarians could view PFE as a discount. On paper, PFE trades at 9.8x trailing earnings. Granted, critics may state that Pfizer may be a value trap. However, over the long run, I believe the company can leverage the lessons learned from the virus to forward advanced therapeutics for a myriad of other diseases.
In the meantime, investors can bank on the passive income. Currently, Pfizer carries a forward yield of 4.45%, well above the healthcare sector’s average yield of 1.58%. Also, PFE’s payout ratio comes in at 49.14%, within an acceptable range. Also, with 12 years of consecutive dividend increases, management will want to keep the trend going.
A classic example of oversold high-yield stocks to buy in my opinion, legacy technology stalwart IBM (NYSE:IBM) deserves a closer look. Yes, I get it. For all the underlying relevancies, IBM has shown little promise in the charts. Since the start of the year, shares sit at a hair below parity. Granted, it’s not a horrific decline by any stretch of the imagination. Still, it’s awfully disappointing compared to Big Blue’s tech peers.
However, IBM offers a legitimate discount. Priced at 14.89x forward earnings, this stat compares favorably to the sector median of 25.77x. Also, IBM doesn’t get the attention it deserves, not only for its development of artificial intelligence but also for leveraging said AI for practical applications. It’s up 5% in the trailing year but it could go so much higher.
Still, that only means a great discount for those seeking high-yield stocks. Right now, IBM carries a forward yield of 4.69%, well above the sector average of 1.37%. While the payout ratio is a bit lofty at 65.88%, it also commands 30 years of consecutive dividend increases.
Philip Morris (PM)
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A controversial idea for oversold high-yield stocks, Philip Morris (NYSE:PM) is one of the world’s biggest tobacco firms. Of course, the underlying business may offend certain sensibilities. And on the surface level, PM doesn’t seem a bright idea. After all, research points to a global decline in smoking prevalence for both men and women. So, PM losing 7% of market value since the Jan. opener seems understandable.
However, available data indicates that these smokers didn’t just go cold turkey. Instead, sales of vaporizers or e-cigarettes (for you vaping aficionados, I don’t want to get into the whole sub-ohm versus above-ohm distinction) have increased. Thus, Philip Morris enjoys a large addressable market with its alternative smoking products, making its 7% year-to-date loss palatable.
Even better, those who aren’t put off by the underlying business can enjoy a forward yield of 5.4%. While the payout ratio is high at 73.89%, the company commands 14 years of consecutive dividend increases.
Kinder Morgan (KMI)
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While the hydrocarbon energy sector suffered amid the Federal Reserve’s hawkish efforts to curb inflation, the sector has made a comeback in recent sessions. However, the combination of social normalization trends and supply constraint concerns haven’t exactly helped Kinder Morgan (NYSE:KMI). As a midstream specialist focusing on energy storage and transportation, Kinder presently doesn’t enjoy downwind benefits. Over time, I believe it will.
Essentially, the company represents a critical cog in the broader energy infrastructure network. Further, as people and enterprises make their way out of the pandemic-fueled norms, we may see an increase in consumption. Plus, because consumers are holding onto their combustion vehicles for longer than ever, this framework spells good tidings for KMI.
Looking to the passive income category, Kinder features a forward yield of 6.55%. That’s significantly higher than the energy sector’s average yield of 4.24%. Still, it’s a risky idea among oversold high-yield stocks in that the payout ratio is 95.83%. if you’re willing to accept it, KMI could be fundamentally intriguing.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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