The stock market's reaching new highs, and that has people wondering how long it will be before profit-takers cause a sell-off. There's no telling what the market may do in the short term, but our Fools think this is a good time to add Verizon Communications (NYSE: VZ), Teva Pharmaceutical (NYSE: TEVA), and Philip Morris International (NYSE: PM) to portfolios, regardless of whether the broader market pops or drops. Read on to learn why they think these companies should be at the top of your list of big-cap stocks to buy this month.
Connect to this wireless play
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Chris Neiger (Verizon): Verizon Communications has been the dominant wireless telecom in the U.S. for years, and all signs suggest that the carrier will hold that position despite increasing competition from its rivals.
For starters, Verizon still has a commanding lead when it comes wireless subscribers. At the end of the second quarter, Verizon had about 152 million subscribers, while its closest competitor, AT&T, had 147 million. What's amazing about Verizon's subscriber numbers is that despite its large size and often more expensive plans, the carrier is still able to grow its subscribers significantly. In the second quarter of this year, Verizon added 531,000 net postpaid subscribers.
Verizon plans to hold on to its lead in the wireless industry by becoming a leader in the upcoming 5G wireless standard. 5G will not only make mobile wireless speeds faster but will also open up new opportunities to bring more devices online through the Internet of Things. Then-CEO Lowell McAdam said on the second-quarter call that "[w]e have driven the 5G ecosystem by pushing the industry to adopt the next generation several years ahead of original expectations, and we are positioned to be the clear leader in the deployment of 5G services based on our technological expertise, asset base, engineering talent, and spectrum portfolio."
That's important, because 5G not only offers a faster experience for mobile users but has also a potential worldwide market size of $251 billion by 2025, while Internet of Things technologies -- smart cities, connected industrial equipment, smartwatches, and the like -- will be worth $6.2 trillion that same year. Verizon has plans to launch commercial 5G services beginning early next year, and if it can replicate the success it had in quickly building out a robust 4G network, then 5G could be a major catalyst for new growth for Verizon.
Add to all of this the fact that Verizon's shares are trading at about 11.5 times the company's forward earnings and that it pays a dividend yield of 4.3%, and the wireless telecom looks even more enticing. Verizon has managed to create a superior network that continues to outpace its rivals, and if the company delivers a 5G network of the same caliber, then investors are likely to be pleased with this investment for years to come.
A Warren Buffett stock with news fast approaching
Todd Campbell (Teva Pharmaceutical): Famous for buying beaten-up stocks at discount prices, Warren Buffett's Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) could net another big winner this month if the FDA approves Teva Pharmaceutical's migraine drug, Ajovy. Berkshire's been building up a position in Teva Pharmaceutical since the beginning of this year, and as of June 30 it owned 43.2 million shares, including 2.7 million shares it bought last quarter.
The FDA's decision on Ajovy is expected on Sept. 16. If it gets a thumbs-up, Ajovy could begin contributing meaningfully to Teva's sales next year. That would be welcome news for investors, because Teva's sales have been sliding in the wake of increased competition at its generic-drug business and the launch of a generic alternative to its best-selling multiple sclerosis drug, Copaxone. Mylan (NASDAQ: MYL) launched its biosimilar Copaxone last year, and in Q2, Teva reported U.S. Copaxone sales of $448 million, down substantially from $843 million in Q2, 2017.
Copaxone's sales are likely to fall further, but Teva's management thinks revenue could start stabilizing next year. If so, then new drugs, including its recently FDA-approved version of the blockbuster drug EpiPen, and Ajovy, could return the company to growth in 2020. Any upside to revenue in the future should benefit its bottom line because the company's implementing a cost-cutting program that's eliminating $3 billion in expenses to increase its margin. Last quarter, Teva upped its non-GAAP EPS forecast to $2.55 or more, an increase from $2.40 or more, and it told investors it's on track to pocket about half its $3 billion in cost savings this year.
Ajovy's decision is the near-term catalyst that makes this a big-cap stock worth buying now, but Ajovy isn't the only reason investors ought to consider adding this company to their portfolio. Despite a big run-up in its shares since news broke that Berkshire has been buying, its price-to-book ratio is still near its lowest levels since 2000.
It's time to turn over a new leaf
Sean Williams (Philip Morris International): It's September, which means fall is around the corner. And as the leaves change color, I'd suggest investors turn over a leaf of their own by giving beaten-down large-cap tobacco company Philip Morris International another shot at redemption.
It's no secret that tobacco stocks are about as exciting as finding a Ford Pinto in a junkyard. They're seemingly yesterday's news, with adult smoking rates in the U.S. having declined from roughly 42% in the mid-1960s to 15.5% as of 2016. With developed countries waging war on tobacco, the industry's long-term prospects have looked bleak.
But Philip Morris has a few edges on its competition. For starters, it doesn't operate in the United States. Though it's facing stricter packaging laws in Australia and a handful of other developed nations, emerging markets in Southeast Asia are offering abundant opportunity. While this opportunity may not mean an uptick in cigarette volume anytime soon, it should help somewhat offset the decline in developed markets.
Second, don't overlook the pricing power of tobacco companies like Philip Morris. Nicotine is an addictive substance, and despite federal, state, and local taxes that have sent the price per pack of cigarettes through the roof in recent decades, along with price increases from tobacco companies, 15.5% of the adult population (that's 38 million adults) still lights up in the United States. This pricing power has played a pivotal role in allowing Philip Morris to grow its top line at a healthy rate (8.3% on a constant currency basis in the second quarter), as well as produce strong profits.
Philip Morris may also have a longer-term solution to its tobacco-use problem: the iQOS heated tobacco device. Though sales of the device have plateaued a bit in Japan, which has been a big reason for the company's share-price decline in 2018, this represents just one of dozens of developed markets where this product could be effective. After all, heated-tobacco unit volume rose by 73% to 11 billion units in the second quarter from the prior-year period. Also, a simple adjustment in how the company is marketing the iQOS device may be all that's needed to reach a larger audience.
Long story short, a forward P/E of 14 with a dividend yield of nearly 6% seems like a bargain for this global tobacco juggernaut.
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Chris Neiger has no position in any of the stocks mentioned. Sean Williams owns shares of Teva Pharmaceutical Industries. Todd Campbell owns shares of Mylan. His clients may have positions in the companies mentioned. The Motley Fool recommends Berkshire Hathaway (B shares), Mylan, and Verizon Communications. The Motley Fool has a disclosure policy.