Stocks to buy

Buying dividend stocks trading at discount pricing is generally a smart idea. Such equities give owners the dual benefit of price appreciation potential in their forward-looking target prices. And two, they also provide nominal income through their periodic dividends. Provided the investor isn’t speculating in high-risk shares, it’s a reasonable strategy overall.

Each of the stocks listed below ticks those boxes. They are discounted based on their average target stock price, and they provide stable dividends. It’s reasonable to argue that dividend stocks currently have an additional advantage because their income is handsome as the economy weakens.

Verizon (VZ)

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Verizon (NYSE:VZ) stock is often generally equated with the broader opportunity in 5G. Verizon is a leading communications firm, and 5G was and is seen as the next big opportunity. Lower latency and greater throughput mean faster everything for users and greater bandwidth. However, Verizon’s story is about much more than that, and 4G LTE still carries the majority of Verzizon’s traffic with 328 million points of presence (POPs) at the end of 2022 vs. 189 million POPs for its 5G network.

Beyond the distinction between Verizon’s 5G/4G networks and what they mean to its business, there’s another important current narrative to understand. A consumer business that had been flagging is now a focal point for future CEO succession. Hans Vestberg was installed as CEO in 2018. He was charged with running its consumer business in 2022 after it had lost subscribers. The segment did improve as subscriber losses were reversed during the last three quarters of 2022. Even so, Sowmyanarayan Sampath was installed to lead the business this year. If he can improve it further, the long-tenured Verizon executive could succeed Vestberg. Consumer growth is a clear metric to follow here.

Phillip Morris (PM)

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Phillip Morris (NYSE:PM) is among several tobacco giants pivoting into a new paradigm representing strong discounted stock opportunities. Phillip Morris is discounted based on its current $99 share price and an average target stock price above $113. The company also pays a quarterly dividend of $1.27 that hasn’t been reduced since 2008. It stands to reason that $99 invested in PM stock today could be worth $118 in a year’s time.

Buying into that notion requires an understanding of where Phillip Morris currently stands and why it should improve. The company remains one of the largest cigarette sellers globally. Over the last three years, Phillip Morris has maintained a very stable 27.6% of the total international market share of the cigarette business. Yet, smoking rates continue to decline, which could hurt the business in the long run.

Regardless, it’s all about buying into the company’s smoke-free future and that business pivot. In 2022, Phillip Morris derived 32.1% of overall revenues from smoke-free products. In 17 of its markets, smoke-free products accounted for more than half of total revenues during the year. The argument seems fairly reasonable, given that trajectory.

Altria (MO)

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Altria (NYSE:MO) is another cigarette/smoke-free tobacco stock to consider for many of the same reasons. It isn’t quite as discounted as Phillip Morris, but it comes with a dividend yielding more than 8%.

The firm’s corporate communications offer much of the same story: smokeless tobacco, nicotine pouches, vapes, and heated tobacco products lead the company toward greater smoke-free revenues. Altria believes its smoke-free product revenues will double by 2028, accounting for 35% of overall sales.

The company sold its stake in JUUL and recently purchased the NJOY e-cigarette brand for $2.75 billion. Again, as with Phillip Morris, the idea here is that Altria will reward investors for sticking with the company even as revenues falter. Altria’s revenues fell 3.5% in 2022. But it paid shareholders $6.6 billion in dividends over the year. That’s a strong enticement, and if you believe in its transition, the upside looks even better. It’s really about believing in the company’s ability to deliver nicotine to its customers in a different, more acceptable form.

Kellogg (K)

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Kellogg (NYSE:K) shareholders could benefit from its planned strategy to split the business in two. It’s basically a tale of a legacy brand finding ways to reinvent a household name by seeking growth and shedding legacy business lines. 

For Kellogg’s, the company will sell off its North American cereals business later this year. Its snacking business, including Cheez-Its, Pringles, and Pop-Tarts, will remain along with its plant-based foods and international cereal business. In other words, it’s dropping slow-growing U.S. cereals in favor of sales growth. It will lose the high margins associated with those legacy cereal brands but will benefit from the higher valuation multiples firms like Mondelez International (NYSE:MDLZ) command. Mondelez successfully executed the exact strategy Kellogg is now undertaking.

Sales growth and higher valuations drive business decisions. Given the precedent Mondelez set, it’s reasonable to anticipate K stock rising in the future.

Vale (VALE)

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There are a host of reasons for investors to consider Vale (NYSE:VALE) stock currently. The mining giant is discounted currently at 27% below its average target price. That’s one. Another reason is that Vale is strategically aligned with General Motors (NYSE:GM). 

Vale and GM agreed to a deal late last year in which Vale will supply 25,000 million tons annually of nickel for its EV battery cathodes. Meanwhile, Vale is reorganizing its copper and nickel business into a new legal structure, Vale Base Metals. GM is highly interested in buying a stake of that business which could be worth $2 billion

The fact that Vale already supplies Tesla (NASDAQ:TSLA) with nickel implies that Vale could benefit in a bidding war. Vale is also interesting based on the fundamental metrics of its overall business. Its profitability metrics are impressive as are its growth metrics. It’s also arguable that VALE stock represents value as well with a forward P/E ratio among the top 20% of competitors.

Equitrans Midstream (ETRN)

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Equitrans Midstream (NYSE:ETRN) stock is logically in a better position now than it was just a few days ago. Even then, it had more than a 50% upside based on the target price. When OPEC+ announced that it would cut production by more than 1 million barrels daily, the company’s prospects improved.

Equitrans Midstream provides pipeline transportation services to the energy industry out of Pennsylvania. It’s reasonable then to assume that due to OPEC production cuts, U.S. firms can step up and fill the void. Saudi Arabia and Russia want to pressure the U.S. following comments about the Kingdom’s reserves in recent weeks. Prices are set to rise.

The opportunity for Equitrans Midstream is to simply transport greater volumes here in the U.S., assuming domestic upstream production rises to meet OPEC’s aggressive move. Volumes should increase, but so should the prices it can charge as the value of its services has suddenly increased.

Realty Income (O)

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Realty Income (NYSE:O) is a retail REIT. The fact that it operates in retail could be a red flag to some investors immediately. But the truth is more nuanced, and Realty Income is quite conservative.

The company invests in retail spaces fitting a relatively low-risk set of criteria. Ideally, that means signing leases for 10+ years in free-standing retail/industrial properties in the non-discretionary, low-price service sector. Think Seven-Eleven, Walgreens, and other retailers have strong demand throughout the business cycle. That’s essentially what Realty Income is. It pays a monthly dividend that hasn’t been reduced since 1999. O stock is a good representation of the kind of company that can do well as commercial real estate falters. It isn’t exposed to large office buildings and workshare spaces in big trouble. Nor does it pay an unreasonably high-yield dividend many other REITs use as an enticement. It represents a balance between low risk and healthy reward.

On the date of publication, Alex Sirois 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.

Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks.Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.

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