In this article, we discuss the 10 best diversified stocks to invest in. If you want to skip our detailed analysis of these stocks, go directly to the 5 Best Diversified Stocks to Invest In.
Big corporations have been eagerly diversifying their portfolios over the past few years in order to shield themselves from the risks associated with a single market segment. There are companies that have crossed over $2 trillion in market capitalization while many others have grown to a valuation of hundreds of billions. Despite this consolidation, many of these large firms, most of them concentrated in the growth industry, have still yet to master stock volatility that has pummeled entire investment portfolios.
As growth stocks undergo yet another period of turmoil amid rumors of tighter regulation and inflation, the smart money seems to be flowing into the manufacturing and industrial conglomerates. It is hard to track the performance of conglomerates as a distinct branch within the business world. The Global Industry Classification Standard, established in 1999 by MSCI and Standard & Poor’s for use by the global financial community, lists 11 top-tier business sectors. These are subcategorized into 24 industry groups, 69 industries, and 158 sub-industries. However, conglomerates are not part of this classification system.
It is difficult for large conglomerates to succeed without strong leadership at the helm that can bring together a diverse group of businesses and make them tick as a single entity. This is why business leaders like Warren Buffett, Bill Gates, and Jeff Bezos – all of whom manage large, diversified companies – have gathered global admirers. Even in manufacturing hubs such as India, Japan, and China, diversified companies form an important part of the overall economy. Reliance Industries from India and the Softbank Group from Japan are prime examples.
The globalization of the world in the past decades and the digitization of the economy in recent months has resulted in the emergence of many conglomerates that have diversified across business lines. More than 20% of the benchmark S&P 500 is now made up of just five big technology conglomerates. Some of the best diversified stocks to buy right now include Amazon.com, Inc. (NASDAQ: AMZN), Berkshire Hathaway Inc. (NYSE: BRK-A), Danaher Corporation (NYSE: DHR), and General Electric Company (NYSE: GE), among others.
Consolidation in other sectors of the economy has also affected the finance world. The emergence of cryptocurrencies and fintech has disrupted markets worldwide. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Our Methodology
With this context in mind, here is our list of the 10 best diversified stocks to invest in. The main aim of this article is to acquaint readers with the biggest names in the conglomerates industry that are presently trading on markets in the United States. Only those firms that have multiple business lines and diverse portfolios were considered for the article.
The list is compiled according to the number of hedge fund holders in each company. Data from the 873 funds tracked by Insider Monkey was used for this purpose.
Special importance was assigned to the basic business fundamentals and analyst ratings for each firm to provide readers with some context so they can make more informed investment choices.
Best Diversified Stocks to Invest In
10. Icahn Enterprises L.P. (NASDAQ: IEP)
Number of Hedge Fund Holders: 4
Icahn Enterprises L.P. (NASDAQ: IEP) is placed tenth on our list of 10 best diversified stocks to invest in. The company has interests in the investment, energy, automotive, food packaging, metals, real estate, home fashion, and pharma sectors. It is headquartered in Florida.
In earnings results for the second quarter, posted on August 6, Icahn Enterprises L.P. (NASDAQ: IEP) reported a revenue of $3 billion, up more than 10% compared to the revenue over the same period last year and beating estimates by $990 million.
Out of the hedge funds being tracked by Insider Monkey, Florida-based investment firm Icahn Capital LP is a leading shareholder in Icahn Enterprises L.P. (NASDAQ: IEP) with 237 million shares worth more than $13 billion.
Just like Amazon.com, Inc. (NASDAQ: AMZN), Berkshire Hathaway Inc. (NYSE: BRK-B), Danaher Corporation (NYSE: DHR), and General Electric Company (NYSE: GE), Icahn Enterprises L.P. (NASDAQ: IEP) is also attracting investor interest in 2021.
9. Seaboard Corporation (NYSE: SEB)
Number of Hedge Fund Holders: 13
Seaboard Corporation (NYSE: SEB) is ranked ninth on our list of 10 best diversified stocks to invest in. The company operates in the agribusiness and transportation domains. It is headquartered in Kansas.
Seaboard Corporation (NYSE: SEB) reported earnings for the second quarter on August 3, posting earnings per share of $151.56 and a revenue of $2.4 billion, up 34% compared to the revenue over the same period last year.
At the end of the second quarter of 2021, 13 hedge funds in the database of Insider Monkey held stakes worth $129 million in Seaboard Corporation (NYSE: SEB), down from 14 in the previous quarter worth $125 million.
Along with Amazon.com, Inc. (NASDAQ: AMZN), Berkshire Hathaway Inc. (NYSE: BRK-B), Danaher Corporation (NYSE: DHR), and General Electric Company (NYSE: GE), Seaboard Corporation (NYSE: SEB) is also a solid investment in the conglomerate sector.
In its Q1 2021 investor letter, Third Avenue Management, an asset management firm, highlighted a few stocks and Seaboard Corporation (NYSE: SEB) was one of them. Here is what the fund said:
“The Fund’s compounder bucket includes companies such as Seaboard (conglomerate). We believe balance sheet strength and prudent capital allocation should allow these companies to compound NAV for many years to come. Financial services companies are roughly one third of the compounder category and are largely comprised of well-capitalized regional banks which make up 21% of the portfolio.”
8. Carlisle Companies Incorporated (NYSE: CSL)
Number of Hedge Fund Holders: 17
Carlisle Companies Incorporated (NYSE: CSL) is an Arizona-based company that operates as a diversified manufacturer of engineered products. It is placed eighth on our list of 10 best diversified stocks to invest in.
On August 18, investment advisory Loop Capital maintained a Buy rating on Carlisle Companies Incorporated (NYSE: CSL) stock and raised the price target to $245 from $215, noting there was greater confidence in the margin expansion potential of the company.
At the end of the second quarter of 2021, 17 hedge funds in the database of Insider Monkey held stakes worth $146 million in Carlisle Companies Incorporated (NYSE: CSL), down from 18 the preceding quarter worth $186 million.
In addition to Amazon.com, Inc. (NASDAQ: AMZN), Berkshire Hathaway Inc. (NYSE: BRK-B), Danaher Corporation (NYSE: DHR), and General Electric Company (NYSE: GE), Carlisle Companies Incorporated (NYSE: CSL) has also made a name for itself as a diversified company.
7. Crane Co. (NYSE: CR)
Number of Hedge Fund Holders: 25
Crane Co. (NYSE: CR) is a Connecticut-based firm that makes and sells engineered industrial products. It is ranked seventh on our list of 10 best diversified stocks to invest in.
On July 27, investment advisory DA Davidson reiterated a Buy rating on Crane Co. (NYSE: CR) stock and raised the price target to $115 from $110, underlining that the earnings beat of the firm in the second quarter was driven by strong organic sales.
At the end of the second quarter of 2021, 25 hedge funds in the database of Insider Monkey held stakes worth $303 million in Crane Co. (NYSE: CR), up from 17 in the previous quarter worth $277 million.
Amazon.com, Inc. (NASDAQ: AMZN), Berkshire Hathaway Inc. (NYSE: BRK-B), Danaher Corporation (NYSE: DHR), and General Electric Company (NYSE: GE) are some of the best diversified stocks to invest in, alongside Crane Co. (NYSE: CR).
6. 3M Company (NYSE: MMM)
Number of Hedge Fund Holders: 42
3M Company (NYSE: MMM) is placed sixth on our list of 10 best diversified stocks to invest in. The company has interests in the industrial, transportation, electronics, healthcare, and consumer products businesses. It is headquartered in Minnesota.
On July 28, investment advisory Argus kept a Buy rating on 3M Company (NYSE: MMM) stock and raised the price target to $225 from $220, noting that the earnings of the firm were poised to grow again after a period of inconsistency.
Out of the hedge funds being tracked by Insider Monkey, Washington-based firm Fisher Asset Management is a leading shareholder in 3M Company (NYSE: MMM) with 5.3 million shares worth more than $1 billion.
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Disclosure. None. 10 Best Diversified Stocks to Invest In is originally published on Insider Monkey.
