Diversification across the 11 different sectors allows for smoother returns.
Given the red-hot run for energy stocks in the last few months, it’s tempting to think the best course of action in 2022 is to abandon all other sectors and go all-in on Big Oil. But while you can certainly make a bundle of cash with aggressive and focused bets like that when you’re correct, you also run the risk of losing your shirt when the market moves away from you and you’re on the wrong side of a trade. For most investors, a diversified and long-term approach to the market is a better course of action to provide more consistent returns. The entire market is broken down into 11 sectors by the Global Industry Classification Standard, developed by MSCI and Standard & Poor’s in 1999 and used as a basis for market indexes. To help identify some top stocks across a wide array of business models, the following list provides 11 picks across all 11 stock market sectors.
Some people may think of Google parent Alphabet as a tech stock. But the reality is that this company is less about software or hardware than it is about media and advertising — from its AdSense platform for publishers to its YouTube video property to sponsored results placed on its flagship search engine. Alphabet is on track to log a 17% increase in revenue this fiscal year to sales of more than $300 billion, with 15% top-line growth expected in fiscal 2023. These staggering figures show Alphabet is the biggest game in town for digital ad dollars — and will continue to dominate for the foreseeable future.
Consumer Discretionary — Lululemon Athletica Inc. (LULU)
LULU was a longtime darling of momentum stock investors through about November of last year, when shares rolled back sharply from their 52-week high of about $485 to bottom at under $300 this March. However, while shares have been volatile, the numbers behind this athleisure giant are still incredibly solid. Case in point: In March, it reported fiscal Q4 revenue that surged 23% year over year and earnings that handily topped estimates. It also guided for revenue growth of 20% to 22% going forward. Perhaps unsurprisingly, LULU has made up all the ground lost this year and is currently flat compared with where it traded Jan. 1, but it’s up more than 30% from lows only a few weeks ago on renewed optimism. That momentum hints that this apparel company is not just on the mend, but thriving.
Consumer Staples — Dollar Tree Inc. (DLTR)
The company that operates both Dollar Tree and Family Dollar discount stores is a case study in counter-cyclical stocks that do well when consumer spending tends to get tight. That’s because brands of this retail chain center upon bargain shopping and pinching pennies — behaviors that are increasingly popular as Americans try to keep a lid on inflationary pressures pushing up the cost of their grocery bills. With more than 8,000 Dollar Tree stores and 8,000 more Family Dollar locales, DLTR has the scale to cash in on this trend. And with year-to-date returns of 11% in an otherwise challenging market, it’s clear that this bargain brand has upside in the current environment.
Energy — Halliburton Co. (HAL)
It’s hard to pick a winner in the energy sector given how many stocks out there have been soaring in 2022. But Halliburton stands out for a few reasons. The first is its scale, with a market capitalization of $35 billion and more than 40,000 employees worldwide. The second is its unique position as an oilfield service stock that is seeing booming demand for its services across the energy sector as expensive crude prices are prompting many organizations to scale up as fast as they can. The third is its ability to put up jaw-dropping returns akin to small-cap tech stocks, including a nearly 70% gain since Jan. 1. The ride may not last forever, but for the foreseeable future amid inflationary pressures and $100 oil it seems a safe bet to bank on HAL.
Financials – T. Rowe Price Group Inc. (TROW)
You likely recognize T. Rowe from your personal investing accounts. This company is one of the top money managers in the world, with 90 years of respected operation on Wall Street and about $1.5 trillion in assets under management at the end of last year. If you’re after income, it’s also worth noting the track record of dividends here as TROW stock has seen 35 straight years of consecutive payouts, giving it a current yield of about 3.2%. Looking forward, the prospect of higher interest rates could also help boost performance as the idle cash at this firm is used to generate better low-risk returns — which, in turn, could result in better performance for its investors.
Health Care – AbbVie Inc. (ABBV)
AbbVie is among the best performers among large-cap stocks this year, with an impressive 20% gain since Jan. 1. Longer term it has put in an even better performance since its March 2020 lows, surging from a low of about $65 to roughly $165 for gains of about 150%. However, AbbVie’s real potential lies in consistent long-term results and income potential. Consider that AbbVie has increased its dividend by more than 250% in short order since its 2013 spinoff from parent Abbott Laboratories (ABT). Right now, that adds up to a yield of about 3.5%. Furthermore, thanks to a strong mix of legacy blockbuster drugs and a pipeline of new and innovative cures, ABBV stock should continue to deliver for the foreseeable future.
Industrials — Lockheed Martin Corp. (LMT)
It’s a brutal reality to admit, but Russia’s invasion of Ukraine has sharpened the world’s focus on defense spending. As a tangible example, Germany committed an additional $110 billion to defense spending in an effort to better arm Europe, and other nations including Poland, Italy and Sweden all pledged higher spending as well. The natural beneficiary of this kind of spending spree is a company like Lockheed Martin, which stands at the forefront of the aerospace industry thanks to its best-in-class aircraft as well as unmanned drones and Javelin surface-to-air missiles that are increasingly important given recent tactics in Ukraine. Shares have surged 25% so far in 2022, and show no sign of slowing down as the conflict drags on.
Information Technology — Palo Alto Networks Inc. (PANW)
Another investment related to the conflict in Ukraine, cybersecurity stock Palo Alto Networks is increasingly important as corporations and governments look to fend off potential cyberattacks. Russian hackers launched a major cyberattack on Ukraine that crashed the nation’s internet in March — including connectivity used by its military — and organizations around the world have been on high alert as the conflict runs the risk of entering cyberspace in earnest. But Palo Alto isn’t just a play on this short-term tail wind, as it boasts impressive top-line growth that includes showing 30% revenue growth year over year in its most recent earnings report and 20% revenue expansion predicted for the full fiscal years of both 2022 and 2023. If you want to play long-term cybersecurity spending, then PANW is a name to watch.
Materials — Alcoa Corp. (AA)
Aluminum giant Alcoa isn’t the most interesting or dynamic name on Wall Street, but it has become all but unstoppable in 2022 amid inflationary pressures raising margins on its metal products and recovering industrial demand in the wake of COVID-19. Shares of the aluminum producer continued to hit new 52-week highs across March, with the stock up more than 40% year to date and trading at almost triple its price a year ago. The macroeconomic picture continues to favor AA stock right now, with prices only climbing higher. The inflationary pressures may be bad for consumers, but they are decidedly good for a materials stock like Alcoa, particularly as Russian aluminum producers are cut out of the global economic picture thanks to sanctions.
Real Estate – Blackstone Mortgage Trust Inc. (BXMT)
BXMT is a real estate finance company that originates senior loans collateralized by commercial properties in North America, Europe and Australia. In other words, it provides the financing for office towers and retail centers around the world. Its diversified portfolio has done quite well over the last six months, even amid broader challenges for the stock market, and it’s actually in the green year to date despite the broader Wall Street headwinds. The icing on the cake, however, is the long-term income potential that its real estate holdings provide. BXMT currently offers a 7.8% dividend right now, which is more than five times the yield of the typical S&P 500 component.
Utilities — Consolidated Edison Inc. (ED)
ConEd is a mid-Atlantic utility stock that primarily serves the New York City region. It’s also one of the most reliable dividend payers on Wall Street. For starters, the stock has paid dividends dating back to 1823. That’s coming up on two full centuries of payouts, which is a simply staggering feat. Those dividends have grown steadily, too, with ED raising its payout at least once per year for the last 48 consecutive years to a current yield of 3.2%. Last but not least, ConEd is effectively a legalized monopoly thanks to geographic dominance in a highly regulated industry with high costs for new entrants. Small wonder that, given this track record, ConEd has risen 13% this year as investors have looked to solid and low-risk names like this in an otherwise uncertain market.
Top stocks to buy in all 11 market sectors:
— Communication Services — Alphabet Inc. (GOOG, GOOGL)
— Consumer Discretionary — Lululemon Athletica Inc. (LULU)
— Consumer Staples — Dollar Tree Inc. (DLTR)
— Energy — Halliburton Co. (HAL)
— Financials – T. Rowe Price Group Inc. (TROW)
— Health Care – AbbVie Inc. (ABBV)
— Industrials — Lockheed Martin Corp. (LMT)
— Information Technology — Palo Alto Networks Inc. (PANW)
— Materials — Alcoa Corp. (AA)
— Real Estate – Blackstone Mortgage Trust Inc. (BXMT)
— Utilities — Consolidated Edison Inc. (ED)
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Update 04/07/22: This story was published at an earlier date and has been updated with new information.