In this article, we will take a look at the top 10 stocks to buy in 10 different sectors.
Diversification when done correctly can improve a portfolio as it can help smooth out the bumps that happen during challenging investment environments.
If one company or one sector faces headwinds, for example, owning leading stocks in many different sectors can potentially reduce a portfolio’s volatility. As a result, diversification when done correctly can help reduce sector and company specific risk.
Diversification does not reduce systemic risk and there will always be risks that diversification will not be able to remove. If the market crashes, many stocks in many different sectors will decline.
Generally, however, many investors believe in the power of diversification. Many quantitative hedge funds such as Renaissance Technologies own holdings in thousands of different stocks.
In terms of diversification, there are many different types including diversification through asset class. A classic example is where an investor invests 60% in leading equities and 40% in leading bonds. Another example of diversification is by diversifying through industry sector. By owning leading shares in all the sectors, a bad performance in one sector might not affect a portfolio all that much.
Diversification
Finding the best diversified stocks can be challenging as most stocks operate in only one industry. Although there are conglomerates that own various businesses in different sectors, there are few leading conglomerates out there.
Instead, the best diversified stocks are arguably very popular leading ETFs such as the Vanguard 500 Index Fund ETF (VOO). For many investors, finding the best diversified stocks would be to own an ETF like the Vanguard 500 Index Fund ETF (VOO) which includes all 500 stocks in the S&P 500 index automatically. The Vanguard 500 Index Fund ETF (VOO) would also be considered as a contender for ranking among the best diversified stocks given its low costs and its large AUM.
For hedge funds trying to find the best diversified stocks, the institutions often purchase individual stocks across multiple different sectors. To find the best diversified stocks, some funds try to buy leading blue chip stocks across all the different sectors. For more on hedge funds, check out 15 Biggest Hedge Funds in the World by AUM if you are interested.
Owning blue chips can also help a portfolio. Blue chips are leading companies with substantial competitive advantages. They often have long histories of profitability and returning capital back to shareholders either through dividends or share repurchases.
2022 has been a challenging year for the markets as high inflation has caused the Federal Reserve to raise interest rates six times this year. Given the interest rate increases, many stocks have declined as the rising rates have softened demand for many companies. With potentially more interest rates in the future, economists think there could be a recession next year. As a result, there could be more downside if economic data fails to meet expectations.
New York Wall Street sign.
Methodology
For our list, we used FINVIZ.com’s categorization of different sectors in the S&P 500 and we picked leading companies from those sectors.
We then ranked the companies based on the number of hedge funds in our database that held shares in the same stock at the end of Q3 2022.
Because we used FINVIZ.com’s categorization, stocks such as Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT) that can be categorized as tech sector stocks make it to our list as leading stocks in different sectors.
Top 10 Stocks to Buy in 10 Different Sectors
10. Duke Energy Corporation (NYSE:DUK)
FINVIZ.com Sector: Utilities
Number of Hedge Fund Holders: 33
Duke Energy Corporation (NYSE:DUK) is one of the largest energy utilities in the United States that is held by 33 of the 920 hedge funds we track in our database at the end of Q3 2022. In terms of its businesses, Duke Energy Corporation (NYSE:DUK) has an electric utility that serves 8.2 million costumers and a natural gas business that serves 1.6 million customers. Given the rise in interest rates this year, many utility stocks have declined given that their dividends have become less attractive to some investors given rising Treasury yields. Duke Energy Corporation (NYSE:DUK) is no exception as its shares are down 5.36% year to date. Nevertheless, the company has a wide moat and numerous competitive advantages.
Alongside Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT), Duke Energy Corporation (NYSE:DUK) is a top stock that many hedge funds in our database owned at the end of Q3 2022.
9. Crown Castle International Corp. (NYSE:CCI)
FINVIZ.com Sector: Real Estate
Number of Hedge Fund Holders: 48
Crown Castle International Corp. (NYSE:CCI) is a leading shared communications infrastructure REIT that ranks as a top stock in the real estate sector. As of 2022, Crown Castle International Corp. (NYSE:CCI) has over 40,000 towers, around 85,000 route miles of fibers, and around 5,000 employees. Given new advancements like 5G and edge computing, demand for Crown Castle International Corp. (NYSE:CCI)’s real estate could remain strong. In the third quarter, Crown Castle International Corp. (NYSE:CCI) reported site rental revenues of $1.568 billion, up 8% year over year. AFFO per share was $1.85 for the period, up 5% year over year.
8. Lockheed Martin Corporation (NYSE:LMT)
FINVIZ.com Sector: Industrials
Number of Hedge Fund Holders: 53
Given the increasing budget of the U.S. military as well as the company’s substantial moat, Lockheed Martin Corporation (NYSE:LMT) ranks as a top stock in the industrials sector. With its year to date rally of 36.6%, Lockheed Martin Corporation (NYSE:LMT) also ranks among the best performing industrials stocks.
Vltava Fund commented on Lockheed Martin Corporation (NYSE:LMT) in a Q3 2022 investor letter,
LMT is one of the world’s largest aerospace and defence companies. The war in Ukraine has reminded investors and the wider public just how important these companies are. The aerospace and defence industry in the USA is an established oligopoly. This means that a few large firms play a dominant role. While collectively they comprise an oligopoly, individually they often have monopoly positions in particular narrower segments. Their main counterparty is the US government, a key customer in what is known as a monopsonist position. This is a rather unusual situation, but one that is very advantageous for companies such as LMT.
LMT has a strong and long-term sustainable competitive advantage ensuing from the fact that its products are developed and manufactured at an extremely high level of technology and complexity, its development and contract cycles are measured in decades, and the costs for the government to switch to alternative suppliers are high. Moreover, part of the production is classified as secret, which further takes the wind out of the sails of potential competitors. This results in a very high return on capital and admittedly a slowly but steadily growing business.
7. Walmart Inc. (NYSE:WMT)
FINVIZ.com Sector: Consumer Defensive
Number of Hedge Fund Holders: 68
Walmart Inc. (NYSE:WMT) ranks as a top stock in the consumer defensive sector given the leading retailer’s scale and competitive advantages. With inflation higher than before, demand for Walmart Inc. (NYSE:WMT)’s low prices has helped the company grow. In FY23 Q3, Walmart Inc. (NYSE:WMT)’s total revenues rose 8.7% year over year to $152.8 billion. Wal-Mart U.S. Q3 comparable sales rose 8.2% year over year and the company continued to gain market share in grocery. The retailing giant’s U.S. e-commerce business also grew 16% year over year.
6. Exxon Mobil Corporation (NYSE:XOM)
FINVIZ.com Sector: Energy
Number of Hedge Fund Holders: 75
Exxon Mobil Corporation (NYSE:XOM) ranks among the top stocks in the energy sector given the company’s scale and profits. With the Russian Ukraine war, energy prices have increased substantially and many of the leading energy companies including Exxon Mobil Corporation (NYSE:XOM) have reported substantial profits. If energy prices decline, however, Exxon Mobil Corporation (NYSE:XOM)’s profits might not be as strong and the sector could underperform.
Like Exxon Mobil Corporation (NYSE:XOM), Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT) are among the top stocks to buy in different sectors that many hedge funds in our database owned at the end of the third quarter.
5. Johnson & Johnson (NYSE:JNJ)
FINVIZ.com Sector: Healthcare
Number of Hedge Fund Holders: 85
Johnson & Johnson (NYSE:JNJ) is a leader in pharmaceuticals, medtech, and consumer health that ranks as a top pick in the healthcare sector. In Q3 2022, the company’s worldwide revenue rose 8.2% year over year when excluding acquisitions and divestitures on an operational basis to $23.8 billion with its consumer health sales increasing 4.7% year over year operationally to $3.8 billion. Johnson & Johnson (NYSE:JNJ)’s worldwide pharmaceutical sales rose 9% year over year operationally to $13.2 billion and its MedTech sales rose 8.1% year over year operationally to $6.8 billion. 85 hedge funds in our database owned shares of Johnson & Johnson (NYSE:JNJ) at the end of Q3.
4. JPMorgan Chase & Co. (NYSE:JPM)
FINVIZ.com Sector: Financial
Number of Hedge Fund Holders: 110
JPMorgan Chase & Co. (NYSE:JPM) is a leading bank that’s a top pick in the financial sector. JPMorgan Chase & Co. (NYSE:JPM) is also among the most widely held financial stocks among the hedge funds we track at the end of Q3 2022 with 110 hedge funds holding shares of the bank.
Vltava Fund commented on JPMorgan Chase & Co. (NYSE:JPM) in a Q3 2022 investor letter,
We regard JPM to be the strongest and best- managed bank in the world. It is a leader in investment banking, commercial banking, credit cards, and asset management. Its size (the largest bank in the USA, with nearly USD 4,000 billion in assets) and diversification give it a strong competitive advantage that is compounded by its cost advantages and the high costs to clients associated with switching banks. JPM’s management prides itself on running the only large bank to avoid major instability over the long term.
3. Alphabet Inc. (NASDAQ:GOOG)
FINVIZ.com Sector: Communication Services
Number of Hedge Fund Holders: 156
Alphabet Inc. (NASDAQ:GOOG) is a top stock in the communications services sector. The company is also considered a tech stock by many investors along with the number two and one stocks on our list in Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT) so the three are not really that diversified. Given Alphabet Inc. (NASDAQ:GOOG)’s profitability and its growth potential in AI, the stock still ranks as one of the best in either sector. At the end of Q3, 156 hedge funds in our database owned shares of Alphabet Inc. (NASDAQ:GOOG).
2. Amazon.com, Inc. (NASDAQ:AMZN)
FINVIZ.com Sector: Consumer Cyclical
Number of Hedge Fund Holders: 269
Like the number one and three stocks on our list in Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN) is a tech stock so the three are not that diversified. Nevertheless, Amazon.com, Inc. (NASDAQ:AMZN) also ranks as a leading consumer cyclical stock given its e-commerce business.
Alphyn Capital commented on Amazon.com, Inc. (NASDAQ:AMZN) in a Q3 2022 investor letter,
“It is fascinating to me how Amazon.com, Inc. (NASDAQ:AMZN) continually uses its scale, operating resources, and “day one” attitude3 to expand the number of industries in which it is involved. Healthcare is now an area of increased focus. In July, Amazon purchased 1Life Healthcare Inc., which operates a primary-care practice under the name One Medical for $3.9 billion. Amazon also bid for home-health-services provider Signify but lost out to CVS in September with a winning bid of $8 billion.
It is hard to predict what direction this will take, but Amazon often finds ways to add “synergies” from seemingly disparate services. For example, consider that Amazon has invested heavily in video, which drives the adoption of its Prime subscription. As a result, prime members provide a recurring revenue stream (approximately $25 billion) and spend more heavily on Amazon’s retail. This strengthens Amazon’s retail network effects to benefit its high margin third-party marketplace and advertising businesses.”
1. Microsoft Corporation (NASDAQ:MSFT)
FINVIZ.com Sector: Technology
Number of Hedge Fund Holders: 269
With 269 hedge fund holders in our database owning shares, Microsoft Corporation (NASDAQ:MSFT) is the most widely held stock in our database at the end of the third quarter. Given its competitive advantages and moat, Microsoft Corporation (NASDAQ:MSFT) is also a top pick in the technology sector. In Q1 FY23, the company’s sales rose 11% year over year to $50.1 billion and its net income decreased 14% year over year to $17.6 billion. In constant currency, net income fell only 8% year over year. CEO Satya Nadella said, “In a world facing increasing headwinds, digital technology is the ultimate tailwind. In this environment, we’re focused on helping our customers do more with less, while investing in secular growth areas and managing our cost structure in a disciplined way.”
Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT) can all be considered tech stocks even if they are considered as stocks in different sectors according to FINVIZ.com so they are not as diversified.
You can also take a look at Warren Buffett’s Top 10 Dividend Stock Picks and 15 Largest Hotel Chains in the US in 2022.
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Disclosure: None. Top 10 Stocks to Buy in 10 Different Sectors is originally published on Insider Monkey.
