Sometimes, the least exciting stock can deliver the best returns in the long run.
There’s plenty of excitement in the stock market right now as artificial intelligence (AI) technology drives huge gains from some stocks. While investing in AI could be a good idea, it’s not the only way to generate solid long-term returns. Don’t forget about boring, unloved stocks trading at pessimistic prices.
Two boring stocks worth buying today are tobacco giant British American Tobacco (BTI 0.89%) and telecom titan AT&T (T 0.48%).
British American Tobacco
While the tobacco industry may not seem all that exciting, a major transition is currently playing out. Volumes of traditional combustibles, like cigarettes, are in decline, particularly in the United States. However, vaping is surging in popularity. According to YouGov, vape usage among U.S. adults surged nearly 40% between 2019 and 2023.
British American Tobacco is betting that demand for newer, non-combustible products can offset slumping demand for standard tobacco products. The company’s Vuse brand enjoyed a global value share of 41.1% in its key markets during the first half of 2024 and a higher value share of 51.5% in the U.S.
Even with global tobacco industry volume expected to decline by 3% this year, British American Tobacco expects to generate low-single-digit organic revenue growth and organic adjusted profit growth at constant currency. Pricing power stemming from brand loyalty in the core cigarette business and growth in newer products are pushing up the top and bottom lines despite a tough industry backdrop.
Based on the average analyst estimate for 2024 adjusted earnings per share, British American Tobacco stock trades for less than 7 times earnings. The dividend is also attractive, with a dividend yield that tops 9%.
British American Tobacco will never be a growth stock, but with a rock-bottom valuation and a solid plan to continue growing despite waning demand for cigarettes, the stock looks like a great deal.
AT&T
Like British American Tobacco, telecom giant AT&T is not a growth stock. The company’s core wireless business is a slow-growing affair. The fiber internet business is growing faster, but offsetting some of that growth is the continual decline of the legacy copper wireline business.
While AT&T’s revenue growth is sluggish, shifting the business toward higher-margin 5G wireless and fiber internet services can drive free cash flow higher at a faster rate. AT&T has been consistently adding wireless subscribers for the past few years, with 349,000 net postpaid phone additions in the first quarter of 2024. The fiber business added 252,000 net subscribers, increasing fiber revenue by nearly 20%.
AT&T expects to generate free cash flow between $17 billion and $18 billion this year. That’s up from $16.8 billion in 2023. Beyond growing the wireless and fiber businesses, the intensity of capital spending will be coming down a bit in the next few years as the 5G investment cycle passes its peak.
Based on the current market capitalization, AT&T stock trades for less than 8 times the midpoint of the company’s free-cash-flow guidance range. The stock also sports a nice dividend, although not quite as generous as that of British American Tobacco. Based on the most recent payment, AT&T stock yields about 5.9%.
With a deeply pessimistic valuation, AT&T stock could be a big winner for investors in the long run.
Timothy Green has positions in AT&T and British American Tobacco. The Motley Fool recommends British American Tobacco P.l.c. and recommends the following options: long January 2026 $40 calls on British American Tobacco and short January 2026 $40 puts on British American Tobacco. The Motley Fool has a disclosure policy.