In this article, we will discuss the 11 Best Stocks In Each Sector. You can skip our overview and go directly to the 5 Best Stocks In Each Sector.
When it comes to investing in the stock market, having a diversified portfolio certainly does wonders for long-term investors. There is an old adage, “Don’t put all of your eggs in one basket,” and it is often quoted by legendary investors like Warren Buffett, underscoring the importance of having a diversified portfolio.
What is diversification, you may ask? Diversification involves mitigating risk by investing in a variety of relatively less correlated assets/industries. Diversification can greatly help to reduce risk and improve the potential for long-term returns. When it comes to investment in the stock market, diversification can be achieved by investing in a range of stocks from different sectors, industries, and geographic regions.
There are several benefits to diversification in stock investing:
Risk reduction: By spreading investments across a variety of stocks, the risk of loss is reduced as the performance of one stock is unlikely to have a significant impact on the overall portfolio. This is because the returns of different stocks tend to be uncorrelated, meaning they are not influenced by the same factors.
Improved returns: While diversification may reduce the risk of loss, it can also potentially lead to improved returns over the long term. This is because a diversified portfolio is more likely to capture the overall performance of the market rather than being reliant on the performance of a single stock or sector.
Flexibility: Diversification allows investors to adjust their portfolios to changing market conditions by adding or removing stocks as needed. This flexibility can help investors to capitalize on opportunities and minimize potential losses.
Warren Buffett famously made a bet on the S&P500 that the market index would beat the returns generated through active investing by hedge fund managers. To no surprise, Warren Buffett came out as a winner as no hedge fund was able to beat the market from the period of January 1, 2008, to December 31, 2017.
Although 2022 was not a good year for the stock market in general, there were certain sectors that generated high returns for investors. Energy stocks, for example, soared as oil and gas prices skyrocketed after the war in Ukraine and the increased global demand. In 2022, The S&P 500 Energy Index returned a whopping 63% to investors, including dividends. Value stocks provided solid returns to investors as growth stocks came under pressure from the rising interest rates. The S&P 500 Value Index, although is down 5.1% YTD on a total return basis, it outperformed the broader S&P 500 index substantially, which is down ∼20% YTD.
Our Methodology
To come up with 11 best stocks in each sector, we have picked the most popular stock amongst hedge funds from each industry outlined by the MSCI. Hedge fund sentiment is often used as an indicator to judge a company’s prospects based on professional money managers’ holdings.
11 Best Stocks In Each Sector
11. Visa Inc. (NYSE:V)
Sector: Financials
Number of Hedge Fund Holders: 165
The financial sector includes firms that provide financial services to commercial and retail customers. These services include banking, credit cards, mortgages, tax preparation, payment services, planning, accounting, and investment management.
Visa Inc. (NYSE:V) is a global financial services company based in San Francisco, California. It was founded in 1958 and is one of the world’s largest and most well-known payment processing companies. Visa Inc. (NYSE:V) provides a range of financial services, including credit and debit card processing, electronic payment processing, and financial technology solutions. The company’s products and services are used by consumers, merchants, financial institutions, and governments around the world.
On December 2, 2022, Donald Fandetti, an analyst at Wells Fargo, increased his price target on Visa Inc. (NYSE:V) to $250 while keeping an Overweight rating on the company’s stock. The analyst believes that the company has become well-established in the global money movement ecosystem and can continue to deliver EPS growth of 20% in the future.
In addition to Visa Inc. (NYSE:V), Domino’s Pizza, Inc. (NYSE:DPZ), Meta Platforms, Inc. (NASDAQ:META), Microsoft Corporation (NASDAQ:MSFT) are included in our list of 11 best stocks in each sector.
At the end of Q3 2022, 165 hedge funds in Insider Monkey’s database were long Visa Inc. (NYSE:V). TCI Fund Management remained the leading stakeholder of the company at the end of Q3 2022.
10. The Home Depot, Inc. (NYSE:HD)
Sector: Consumer Discretionary
Number of Hedge Fund Holders: 89
The consumer discretionary is divided into the manufacturing segment, which includes automobiles, durable home products, textiles & clothes, and recreational equipment, and the services segment, which comprises hotels, restaurants, recreational facilities, media production, and consumer retailing and services.
The Home Depot, Inc. (NYSE:HD) operates a network of more than 2,200 retail stores in the United States, Canada, and Mexico. The company sells a wide range of home improvement products, including building materials, tools, appliances, and home decor. The Home Depot, Inc. (NYSE:HD) also provides home improvement services, such as installation, repair, and maintenance services, through its professional services division.
On November 16, 2022, Scot Ciccarelli, an analyst at Truist, reduced his price target on The Home Depot, Inc. (NYSE:HD) to $382 from $400 while keeping a Buy rating on the stock. According to the analyst, the company’s operations are robust, and its margins are still under control despite housing issues and a difficult cost environment.
Matrix Asset Advisors made the following comment about The Home Depot, Inc. (NYSE:HD) in its Q3 2022 investor letter:
During the quarter, we re-established a position in The Home Depot, Inc. (NYSE:HD) sold earlier this year, after the shares declined sharply on big picture concerns about a softer housing market and lower consumer spending. We believe that HD is a very well-managed company, positioned to continue showing good profits even as the economy decelerates. The products it carries in inventory are in year-round demand from contractors and homeowners wanting to maintain and improve their homes. The company has historically been shareholder friendly, repurchasing shares and increasing the dividend, most recently by 15% earlier this year. On September 30, HD’s current dividend yield was 2.8%.
According to Insider Monkey’s database, 89 hedge funds owned stakes in the company at the end of the September quarter. Fisher Asset Management held the biggest stake in The Home Depot, Inc. (NYSE:HD) at the end of Q3 2022.
9. UnitedHealth Group Incorporated (NYSE:UNH)
Sector: Health Care
Number of Hedge Fund Holders: 110
The healthcare sector includes companies that provide clinical services, manufacture medical equipment, and drugs, and offer support services like health insurance. It also consists of companies that are involved in the research, development, manufacturing, distribution, and marketing of medications and biotech products.
UnitedHealth Group Incorporated (NYSE:UNH) is a diversified healthcare company based in Minnetonka, Minnesota. The company is a healthcare conglomerate that operates a number of different businesses, including UnitedHealthcare, Optum, and UnitedHealth Group Ventures. The company’s main business is UnitedHealthcare, which provides health insurance and healthcare services to individuals, families, and businesses in the United States.
On October 18, 2022, George Hill, an analyst at Deutsche Bank, increased his price target on UnitedHealth Group Incorporated (NYSE:UNH) to $615 while keeping a Buy rating on the stock. According to the analyst, the company reported strong third-quarter revenue, with membership growth remaining strong and value-based agreements continuing to rise.
As per Insider Monkey’s database, 110 funds remained bullish on the company at the end of Q3 2022. GQG Partners had the biggest long position on the company’s shares at the end of the third quarter.
8. Exxon Mobil Corporation (NYSE:XOM)
Sector: Energy
Number of Hedge Fund Holders: 75
Firms engaged in oil and gas drilling, refining, and exploration and development of oil and gas reserves are included in the energy sector. This sector also includes firms that generate non-renewable and renewable energy and firms that provide oil and gas equipment services.
Exxon Mobil Corporation (NYSE:XOM) is involved in a range of energy-related businesses, including exploration and production of oil and natural gas, refining, marketing, and distribution of petroleum products, and chemical manufacturing. Exxon Mobil Corporation (NYSE:XOM) has operations in more than 50 countries around the world and is known for its large-scale, integrated business model.
On November 11, 2022, Ryan Todd, an analyst at Piper Sandler, increased his price target on Exxon Mobil Corporation (NYSE:XOM) to $131 from $113 while keeping an Overweight rating on the stock. According to the analyst, the company’s third-quarter result has strengthened the macro-outlook for integrated oil going into 2023.
As per Insider Monkey’s database, 75 hedge funds owned stakes in Exxon Mobil Corporation (NYSE:XOM) at the end of the third quarter. GQG Partners remained the leading stakeholder of the company at the end of Q3 2022.
In its Q2 2022 investor letter, First Eagle Investments, an asset management firm, highlighted a few stocks and Exxon Mobil Corporation (NYSE:XOM) was one of them. Here is what the fund said:
Integrated oil and gas giant Exxon Mobil performed well in the second quarter as continued high prices for energy products supported the stock. As the largest refiner in the US, the company has benefitted from wide “crack spreads,” or the margin between the cost of crude oil and the petroleum products extracted from it. Exxon continues to invest in refining capacity in the US, which industry wide has been in steady decline since 2019. We are pleased that Exxon has been using its strong cash flows to reduce debt and to return cash to shareholders through dividends and stock repurchases.
7. NextEra Energy, Inc. (NYSE:NEE)
Sector: Utilities
Number of Hedge Fund Holders: 73
The utilities sector comprises companies that provide basic amenities to consumers. Companies that provide services related to water, electricity, sewage, natural gas, and dams are all part of this sector.
NextEra Energy, Inc. (NYSE:NEE) is a renewable energy company based in Juno Beach, Florida. It is a leader in the development and operation of clean energy assets, including wind and solar power plants and natural gas infrastructure. NextEra Energy, Inc. (NYSE:NEE) owns and operates a diverse portfolio of clean energy assets, including more than 14,000 megawatts of wind and solar power capacity in the United States and Canada.
On October 24, 2022, Shahriar Pourreza, an analyst at Guggenheim, reduced his price target on NextEra Energy, Inc. (NYSE:NEE) to $99 while keeping a Buy rating on the company’s stock. The analyst is reducing his estimates to adjust for seasonality.
At the end of Q3 2022, 73 hedge funds in Insider Monkey’s database were long NextEra Energy, Inc. (NYSE:NEE). Fisher Asset Management remained the leading stakeholder of the company at the end of Q3 2022.
6. Transdigm Group Inc (NYSE:TDG)
Sector: Industrials
Number of Hedge Fund Holders: 63
The industrial sector consists of producers and distributors of capital goods, including aerospace and military equipment, building supplies, electrical equipment, and machinery. Companies that provide professional and commercial services like printing, security, human resources, transportation, engineering and construction services, etc., are also included in this sector.
TransDigm Group Inc. is a global company that designs, manufactures, and supplies aircraft components, such as hydraulic and fuel systems, cockpit security items, and engine components, for use in commercial, military, and general aviation aircraft. It was established in 1993 and is based in Cleveland, Ohio.
Last month, Wells Fargo downgraded its ratings for the aerospace manufacturing company from “Overweight” to “Equal Weight.” Analyst Matthew Akers downgraded his ratings for TransDigm Group Inc., citing weakening demand and elevated costs that could potentially hamper the company’s growth. In addition, he lowered his price target for the company, which is listed on the New York Stock Exchange under the ticker symbol TDG, from $735 per share to $660 per share.
Here is what Vulcan Value Partners said about Transdigm Group earlier this year:
“TransDigm Group Inc. is an aerospace manufacturing firm that provides highly engineered, niche components for use on commercial and military aircraft. The vast majority of the company’s profits come from aftermarket sales of sole-sourced products. The company produces high levels of free cash flow and has an effective, shareholder-oriented management team who are good capital allocators. Despite the company’s strong results during the quarter and solid outlook, its stock price declined.”
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Disclosure: None. 11 Best Stocks In Each Sector is originally published on Insider Monkey.
