In this article, we discuss the 11 best-diversified stocks to buy now. If you want to skip a detailed analysis including the pros and cons of diversified companies, go directly to the 5 Best Diversified Stocks to Buy Now.
During the current economic turmoil and volatility, investing in companies with diversified products and service portfolios can be beneficial. In 2022, many indexes in the financial markets suffered a steep decline due to several industries falling prey to rising interest rates and inflation. At the end of the year, NASDAQ was down by 34%, the S&P 500 index was down by almost 20%, and Dow Jones recorded a decline of 8.8%. In such economic downturns, companies with diverse product portfolios can shield themselves better as one segment’s gains can offset the losses of another within the firm.
One case that can be made for conglomerates or diversified companies is that renowned American investors like Warren Buffett, David Tepper, Michael Larson, and Richard S. Pzena have significant investments in diversified companies such as Microsoft Corporation (NASDAQ:MSFT), Berkshire Hathaway Inc. (NYSE:BRK-B), and General Electric Company (NYSE:GE).
Some advantages of many diversified companies are that most of them are cash-rich well-established blue-chip stocks that can remain stable during market downturns. This trend can be seen in the Dow Jones index, a collection of 30 of the finest blue-chip stocks that suffered the least during the tough macroeconomic conditions of 2022. A healthy cash position also means that these companies will not shy away from shareholder returns in the form of dividends and share repurchases. Diversification also helps a company expand its customer base and face fewer threats from the competition.
Our Methodology
After careful market analysis, we found and listed down the best companies that have diversified product portfolios. We listed the companies according to their hedge fund sentiment which was taken from Insider Monkey’s database of 943 elite hedge funds. Moreover, we skipped some companies that have diverse portfolios of products and services because they generate most of their revenue from a single source.
Best Diversified Stocks to Buy Now
11. Sea Limited (NYSE:SE)
Number of Hedge Fund Holders: 48
Sea Limited (NYSE:SE) is a tech conglomerate based in Singapore. It initially started as a game developer in 2009. However, in addition to its game development platform, the company now owns two banks, a Singaporean soccer team, a digital payment platform, and an e-commerce company.
A total of 48 hedge funds had stakes in the company as of the end of the fourth quarter of 2022. Kora Management owned over 3.97 million shares of the company in the fourth quarter, making it the hedge fund with the largest stake in Sea Limited (NYSE:SE).
Here is what Hayden Capital had to say about Sea Limited (NYSE:SE) in its Q3 2022 investor letter:
“Sea Limited (NYSE:SE) reported earnings last week, after which the share price rebounded +36% in a single day. The most obvious question that comes to mind, is why didn’t we sell more last year, when prices were still high? The truth is that we did sell a significant amount, but in hindsight obviously wish we were more aggressive with the sales.
For example, we owned the peak number of shares of Sea Ltd in Q1 2020, and steadily trimmed over the next two years. From Q1 2020 to Q1 2022, we trimmed ~39% of our shares over that period. However, the issue was that the investment continued to grow as a percentage of the overall portfolio, since the share price appreciated much faster than our sales (+620% from 1Q20 to 3Q21). This was a similar case for our other long-tenured positions as well.
So why didn’t we trim more aggressively and just hold cash? The answer is that at its core, I believe that holding cash is implicitly a market timing call. I certainly didn’t foresee a likely recession on the horizon so quickly after the turbulence of Covid already had on the economy. Even in late 2021, after it was clear interest rates would start rising, we were still operating under the assumption that rates would cause valuations to compress, but likely wouldn’t have an impact on the overall earnings trajectory. Given our expectations for strong earnings growth, we thought this could more than offset the valuation compression over time, and would still generate strong IRRs over a 3 – 5 year timeframe…” (Click here to see the full text)
10. 3M Company (NYSE:MMM)
Number of Hedge Fund Holders: 52
3M Company (NYSE:MMM) is one of the biggest diversified companies, offering thousands of products for different industries. The company manufactures products for the healthcare, consumer goods, industrial (safety), and electronics industries. Furthermore, 3M Company (NYSE:MMM) has further diversified its portfolio to include renewable energy and transportation industries. The company was founded in 1902 and is headquartered in Minnesota, U.S.
3M Company (NYSE:MMM) is a high-yield Dividend King with a yield of 5.86% (at the time of writing). The company has increased its dividends for over 6.5 decades. On February 7, 3M Company (NYSE:MMM) increased its quarterly dividend to $1.50 from the prior $1.49. The quarterly dividend was paid out on March 12 to the shareholders of record on February 17.
Mayar Capital mentioned 3M Company (NYSE:MMM) in its Q2 2022 investor letter. Here is what the firm has to say:
“We also bought back into 3M (NYSE:MMM) as the stock reached attractive levels. We’d sold our shares in 3M last year when the price exceeded our estimated fair value, and as better opportunities to invest in presented themselves at the time. Nonetheless, we’ve always liked this business with its diversified revenues, its R&D leadership and its stable margins.”
9. General Electric Company (NYSE:GE)
Number of Hedge Fund Holders: 59
General Electric Company (NYSE:GE) is a Massachusetts-based multinational conglomerate with a portfolio spanning several industries including aviation, 3d printing, conventional and renewable energy, automation, and financial services, along with a few others. It is one of the most diversified stocks in the U.S.
On March 10, RBC Capital analyst Deane Dray reiterated an Outperform rating on General Electric Company (NYSE:GE)’s shares and raised the price target to $100 from $93. The firm mentioned that the company’s 2025 FCF and growth targets were “feel-goods.”
In the fourth quarter of 2022, General Electric Company (NYSE:GE)’s hedge fund holders increased to 59 from 53 in the third quarter of 2022. On top of that, the value of hedge fund holdings increased from $3.7 billion in Q3 to approximately $4.4 billion in Q4. Pzena Investment Management was the most noteworthy stakeholder of General Electric Company (NYSE:GE) in the fourth quarter with over 13.2 million shares worth over $1.106 billion.
Vulcan Value Partners made the following comment about General Electric Company (NYSE:GE) in its Q4 2022 investor letter:
“General Electric Company (NYSE:GE) recently spun off its health care businesses, General Electric HealthCare Technologies, which has leading market share positions in medical imaging products including MRI devices and CT scanners. General Electric’s remaining businesses include Aerospace and its Power and Renewables business. Aerospace is performing well and comprises the bulk of General Electric’s value in our opinion. We believe that the spin-off of General Electric HealthCare Technologies has highlighted the value of General Electric’s remaining business units. General Electric intends to spin out its Power and Renewables business unit early in 2024.”
8. Warner Bros. Discovery, Inc. (NASDAQ:WBD)
Number of Hedge Fund Holders: 60
Warner Bros. Discovery, Inc. (NASDAQ:WBD) is an American mass media and entertainment giant headquartered in New York. The company’s products and services include theme parks, comics, films, video games, sports broadcasting, and streaming services, along with many others. The company was founded in 2022 after the merger of Warner Brothers and Discovery Inc. and it operates globally.
Warner Bros. Discovery, Inc. (NASDAQ:WBD) has recently been favored by analysts. On March 17, Wolfe Research analyst Peter Supino and Wells Fargo analyst Steve Cahall upgraded the stock from Neutral to Outperform and raised their price targets to $20. The company stock has now gained over 60% at the time of writing from its December lows.
According to our database, 60 hedge funds had a stake in Warner Bros. Discovery, Inc. (NASDAQ:WBD) in Q4 2022, compared to 61 in Q3 2022.
Artisan Partners made the following comment about Warner Bros. Discovery, Inc. (NASDAQ:WBD) in its Q4 2022 investor letter:
“Warner Bros. Discovery, Inc. (NASDAQ:WBD) is a global media and entertainment company that is the result of the 2022 merger of Discovery and WarnerMedia. Warner is known for its theatrical releases, networks (CNN, TNT, TBS) and pay television network HBO and related over-the-top streaming service HBO Max. The legacy Discovery business distributes content across US and international networks—such as HGTV, Discovery, TLC, Food Network and Animal Planet—as well as its own streaming service Discovery+. We believe the total portfolio of content and entertainment assets should provide a compelling direct-to-consumer offering to attract viewers and the scale to invest in original content. There is a lot of opportunity, but there’s also uncertainty related to the merger’s integration and realized cost synergies. These questions, in addition to a challenging macro environment for advertising and foreign exchange headwinds, have been overhangs on the stock price.
Further, media and entertainment stocks have come under pressure due to skepticism about the industry’s long-term economics. Our view is streaming is a scale and intellectual property business that will result in a few large winners, and we believe HBO Max will be among this group. WBD looks like a bargain, selling at a double-digit FCF yield.”
7. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 84
Johnson & Johnson (NYSE:JNJ) is an American multinational company with a diverse product line including pharmaceuticals, consumer health, medical devices, vision care, and nutrition. Moreover, the company’s venture capital arm, Johnson & Johnson Innovation, invests in several early-stage companies that include healthcare companies, technology companies, and consumer products.
In the last three months, 9 analysts have covered Johnson & Johnson (NYSE:JNJ)’s stock with three of them maintaining a Buy rating, while six of them keeping a Hold rating. The lowest price target of the company by these analysts is $161 which represents a 6.587% upside to the stock price of $151.05 at the time of market close on March 22.
Here’s what Distillate Capital Partners LLC said about Johnson & Johnson (NYSE:JNJ) in its Q2 2022 investor letter:
“Johnson & Johnson was among the 2 largest trims at around 1% each. Each stock was up 1% in the quarter compared to the 16% price decline for the S&P 500 and the positions were reduced as the valuations became somewhat less appealing, though still attractive enough to warrant inclusion.”
6. Danaher Corporation (NYSE:DHR)
Number of Hedge Fund Holders: 88
Danaher Corporation (NYSE:DHR) is an American multi-industry company with various business segments including life sciences, diagnostics, environmental and applied solutions, and dental products.
On February 22, with the announcement of an 8% increase to its quarterly dividend, Danaher Corporation (NYSE:DHR) recorded its ninth consecutive year of dividend growth. With an annual payout of $1.08, the company has a dividend yield of 0.44% as of March 22. The next quarterly dividend will be payable by Danaher Corporation (NYSE:DHR) on April 29, to the shareholders of record on March 31.
Stewart Asset Management mentioned Danaher Corporation (NYSE:DHR) in its Q3 2022 investor letter. Here is what the firm has to say:
“We also need to point out one global consequence of the rapid rise in interest rates: an irrepressibly strong dollar. This hurts the reported earnings of U.S. companies who sell their goods and services overseas. Foreign currency earnings translate into fewer dollars and thus lower earnings. Most of the companies in your portfolios gain a notable amount of earnings from their international operations. While the strength or weakness of a currency doesn’t change the quality of a business or its longer-term earnings power, it can change the reported earnings of a company over short periods of time. It is difficult to forecast this effect accurately because many of our companies manufacture where they sell, which to some extent dulls the sharp negative effect of a surging dollar. Danaher (NYSE:DHR), among others, is a good example.”
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Disclosure: None. 11 Best Diversified Stocks to Buy Now is originally published on Insider Monkey.
