Most Convenient Sectors for Investments
October 25, 2021 (Investorideas.com Newswire) Many stocks are up 20% or more this year. The stock market is near an all-time high, and the bull market still has room to run. This seems like a great time to find some bargains, but there aren't any. Of course, that won't stop us from searching for them-it's human nature to be scared when everyone else is making money and then try to buy low even if it doesn't make sense.
Now may not be the best time because lots of companies look cheap by traditional metrics but actually aren't buying opportunities at all right now. That's what makes investing so hard-a lot of companies that should be decent investments look really risky right now.
So how to track insider trading? Where are the places we can look for opportunities? Tech is a great place to invest right now, as it has been throughout this recovery. But technology isn't just Apple and Google-there are a lot of other sectors that have been buyers too. The reason is they aren't expensive either, so there's unlikely to be a big drop in price if the market falls. In fact, they're all up more than 20% this year as well which means investors expect them to keep growing regardless of what happens with the rest of the stock market.
Oil and gas is the best-performing sector so far this year-up nearly 40%. The problem is that most investors expect oil prices to fall next year, as they always do around this time of year. This is because refineries shut down for maintenance in the fall and winter, leading to a decrease in demand and an increase in supply.
That sounds bad, but it's not really an issue if we're looking at longer-term investments. We don't instantly need the money back we invest right away which means we can earn some extra interest on it until then. After all, even with lower oil prices now, demand for oil will again rise as refineries come back online the following year.
One thing that makes all these producers stand out from traditional stocks is that they offer better protection from downturns by virtue of being cyclical. When things go south, people stop buying new cars, furniture, and new homes. Period. That means these producers suffer too, but because they make stuff people will buy again one day, it's only temporary pain.
That doesn't mean they won't go down in price if the market goes down, they will, but not nearly as much as other stocks would. And even if the downturn lasts for years, these companies still have long-term contracts that help them stay profitable during tough times. So investing now is safer than it seems at first glance if you know where to look.
The three best bets are Whirlpool Corporation (WHR), Lennar Corporation (LEN), and Whiting Petroleum Corporation (WLL). They're all cyclical producers that sell things people need no matter what the economy is doing. They're all up more than 25% this year, but still seem reasonably priced as these things go-not cheap enough to be obviously a bargain, but not expensive either.
You can think of them as cyclical stocks with good balance sheets and decent dividends. These aren't high-growth companies, they don't need new capital and they pay their shareholders quarterly rather than reinvesting earnings back into the business or reducing the share count through buybacks as most growth stocks do. That's why these stocks tend to do well during downturns: they don't lose much value because people stop buying stuff (and contracts help them stay profitable), then rally when everyone else does as fears of recession fade away again, at which point their low prices make them great values.
One way to think about these stocks is that they behave like the S&P 500 when the market falls, but not when it goes up. So if you're worried about a correction in the near term, keep some of your investable assets in cyclical producers like this whose prices should hold up well during tough times and rally strongly when the economy rebounds again. For a longer-term view, these aren't bad stocks to own either in the hopes they'll keep their value in a downturn and grow when things get better.
Cyclical stocks aren't as sexy as tech, but they're a lot safer and better for this market environment. The best ones to buy now are Whirlpool Corporation (WHR), Lennar Corporation (LEN), and Whiting Petroleum Corporation (WLL). They're cyclical producers with good balance sheets and shareholder-friendly business models that make them the perfect stocks for these troubled times.
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