Love him or hate him, CNBC’s Jim Cramer is certainly an entertaining figure. And one of his notable phrases is that “there is always a bull market somewhere.” Logically, a great place to find it is to consider the best stock in each sector.
Currently, there are 11 S&P 500 sectors that cover a broad range of industries and economic activities. As we move forward, it’s probable that we’ll see additional categories. After all, something like “technology” is too constraining given the many specific functions and applications that are present in this market. But until then, we have what we have.
Now, in the interest of full disclosure, I’m starting to get concerned about the dichotomy between record-breaking indices and the underlying economy. For instance, while I understand the motivation behind lockdown measures, rising concerns about collective mental health could become a huge concern. It also suggests that the real economy is much worse off than we may think.
Having said that, an ideal methodology is to put your money to work with the best stock in each sector. No matter what is going on with particular industries, the most robust, resilient companies rise to the top. Sure, some areas like oil and gas may not offer much confidence to prospective buyers. However, it’s not as if that economic segment will vanish overnight.
In other words, if you must play musical chairs, recruit players that are the most athletic or that can physically box out others. Chances are, you’ll do well in the long run. With that in mind, here are my ideas for the best stock in each sector:
- GCI Liberty (NASDAQ:GLIBA)
- Tapestry (NYSE:TPR)
- Home Depot (NYSE:HD)
- NextEra Energy (NYSE:NEE)
- PayPal (NASDAQ:PYPL)
- Johnson & Johnson (NYSE:JNJ)
- Air Lease (NYSE:AL)
- MDU Resources (NYSE:MDU)
- Zillow (NASDAQ:Z, NASDAQ:ZG)
- Palo Alto Networks (NYSE:PANW)
- Duke Energy (NYSE:DUK)
You’ll notice that many of these names are off the beaten path relative to what InvestorPlace typically covers. That’s by design. I wanted to use this opportunity to expand our horizons. Without further ado, let’s dive into the best stocks to buy in each market sector.
Best Stock in Each Sector (Communication Services): GCI Liberty (GLIBA)
When it comes to communication services, big names like Verizon (NYSE:VZ) dominate the landscape. However, for the best stock in each sector, I’d tip my hat to GCI Liberty. No, GLIBA stock doesn’t have the name recognition of something like Verizon. For instance, GCI Liberty’s namesake flagship asset is an Alaska-based communications provider.
But when you stack up GLIBA stock to many other big-league communications investments in terms of year-to-date performance, it’s no contest. Since the January opener, GLIBA is up 31%. In sharp contrast, VZ has barely broken even. To be fair, Verizon provides a dividend and a generous yield at that. However, I think most folks would rather have the 31% return.
One explanation for GCI Liberty’s success is that it didn’t take some of the wild acquisitive bets that its larger rivals did. Further, the novel coronavirus pandemic has reinvigorated demand for reliable internet services.
Consumer Discretionary: Tapestry (TPR)
Before there was Karen, there was Becky. Hailing from at least an upper-middle-class family, Beckys almost always drive BMWs and sport the latest fashions. They also care very much about status and pedigree as you might debate the virtues of adopting a pit bull versus a golden retriever. As well, Beckys’ preferred choice of handbag is Coach. And that serves Tapestry and TPR stock just fine.
If you don’t know, Coach is one of the flagship brands under Tapestry, which also owns Kate Spade and Stuart Weitzman. On the surface, TPR stock doesn’t seem like an appropriate idea. After all, we’re in an economic crisis as well as a health one. Further, as Covid-19 cases continue to rise to absurd levels, the narrative for discretionary plays becomes harder to justify.
But then, you also look at the possible K-shaped recovery that’s in play. For instance, while the national unemployment rate is 6.9%, the rate for college educated workers and those with a master’s degree is 4.2% and 3.6%, respectively. Basically, Tapestry consumers are so far insulated from the crisis. That’s why for discretionary retail, it’s my pick for best stock in each sector.
Consumer Staples: Home Depot (HD)
Let’s just get this out of the way: Home Depot isn’t going to win any awards for the best stock in each sector that generates exceptional excitement. Indeed, HD stock is one of those “throw away” investments. Put politely, you sock this into your retirement account and after a few decades, you’re surprised at how much value it has accrued.
But this year, it has been an indelible contributor for people seeking shelter. For one thing, HD stock has been no slouch, up 20% YTD. No, it’s not the 10-bagger that some technology firms have produced. But investors can also depend on Home Depot without too much fear of losing everything.
More importantly, the underlying business was crucial during the onset of the pandemic. Personally, I’ve taken advantage of its ship-from-store contactless deliveries and I loved my experience. With the coronavirus again rearing its ugly head, this consumer staples giant is looking very relevant again.
Energy: NextEra Energy (NEE)
Among the contentious issues during the election cycle this year was energy. President Trump supported fossil fuels whereas former Vice President Joe Biden focused on clean renewables. Naturally, big oil looked to the presidential debates with some concern. As demand faltered because of the Covid-19 crisis, oil has not looked very endearing.
Obviously, that poses a challenge when you’re writing about the best stock in each sector. As I study the issue, I’m not entirely sure if renewables will replace fossil fuels in our lifetime. Nevertheless, society is clearly turning toward renewables, which makes NextEra Energy as relevant as it’s ever been.
Better yet, this relevance shows up in the charts. On a YTD basis, NEE stock is up over 24%. With the Biden Plan calling for net-zero emissions by 2050, his administration is a key catalyst for sector evangelism.
Additionally, growing fears of climate change would have likely propelled NEE stock, irrespective of who won the White House. Thus, this is a ticker to keep close tabs on if it’s not already in your portfolio.
Financials: PayPal (PYPL)
Another market segment that’s initially troubling when discussing the best stock in each sector, when you hear the word financials, you automatically think the big banks. While that’s true, the very idea of financials is evolving as we speak. For example, cryptocurrencies succeeded in casting doubt as to whether we need a central bank at all.
Therefore, my pick for best stock in each sector in the financial realm is PayPal. Primarily, the company is a payment solutions provider. However, the tremendous rise and influence of the gig economy makes PYPL stock an investment into next-generation business infrastructures. Certainly, the Covid-19 disruption has caused many people to rethink the idea of work. As we become more digitalized and decentralized from physical locations, PayPal will gain prominence.
Most importantly, the company offers a solution for the unbanked and underbanked. Even in America, over 6% of households are unbanked. These consumers may not figure into the big banking system’s radar, but they’re golden for PYPL stock.
Healthcare: Johnson & Johnson (JNJ)
Apparently, if Evercore ISI pharma analyst Josh Schimmer’s numbers are correct, the novel coronavirus will be one heckuva profitable market. Basically, the vaccine players will split $100 billion in sales and $40 billion in profits. It pays to be Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA) right now.
Still, I’m not picking either to be the best stock in the healthcare sector. Don’t get me wrong, they’re both great organizations. But if I could only go with one name in the healthcare space, it’s Johnson & Johnson.
For one thing, JNJ stock is levered to the Covid-19 vaccine race. Yes, the aforementioned duo is in the lead. But bear in mind that vaccines from both will likely require two injections, along with stricter storage requirements. But Johnson & Johnson’s candidate may require just one shot and no frozen storage.
If that doesn’t work out, the company is still a massive healthcare provider. Furthermore, vaccines won’t be available at scale for at quickest several weeks. That means we must rely on Johnson & Johnson’s over-the-counter meds, which bodes well (cynically) for JNJ stock.
Industrials: Air Lease (AL)
When the Covid-19 disaster first hit the U.S., the one segment to suffer disproportionately relative to others was the airliners. Frankly, how can you not feel terrible for the legions of employees and contractors levered to this broad supply chain? That’s why Air Lease doesn’t sound like it belongs in a discussion about the best stock in each sector. Maybe if we’re talking about the worst, AL stock would fit.
I’m not going to fill your head with unrealistic expectations: anything associated with airliners is a risky move, irrespective of the industry’s recovery efforts. However, if you do want to place a wager, AL stock may afford you the highest probability of upside. Although individual airliners may be vulnerable to volatility, we have assurances that the sector itself will continue moving forward.
Further, the Covid-19 crisis has made airplane leasing much more viable than purchasing, which carries significant risks. Still, I probably wouldn’t get involved unless it was with money dedicated to gambling.
Materials: MDU Resources (MDU)
In my mind, MDU Resources confirms Jim Cramer’s view that there’s always a bull market somewhere, even in the materials arena. When tackling the best stock in each sector, I prefer the high-profile stuff. Nevertheless, this list wouldn’t be complete without mentioning all markets, so here we are.
Right off the bat, MDU stock is a laggard when it comes to YTD performance, where it’s presently down double digits. However, shares have performed admirably since the March doldrums earlier this year. Plus, it has continued to make steady gains despite Biden winning the election. After all, you’d think the Trump administration would be better for the company.
However, that hasn’t actually been the case. Only until we saw evidence of a thawing in U.S.-China relations did MDU stock show signs of life. Perhaps that’s why investors have renewed interested in this materials company. Presumably, a career politician will be better for our economy because of more polished diplomatic skills.
Real Estate: Zillow (Z, ZG)
In our discussion of the best stock in each sector, the real estate market is the one that really caught me off guard. At the onset of the crisis, it really seemed as if the apocalypse was coming. But with real estate, the opposite happened. Sure, there was an initial shock but then people come out by the droves to buy homes. Now, it’s impossible to get a place in a popular metropolitan area without going through a bidding war.
Of course, that’s great news for Zillow and ZG stock. Apparently, the sector is only going to enjoy more upside. According to a recent CNBC report, “Mortgage applications to purchase a home jumped 9% last week from the previous week and were 28% higher annually.”
Confused? Well, from a Washington Post article, the rich are advantaging record-low mortgage rates while those on the lower end of the income scale are getting evicted. This dynamic may continue in the near term as the Biden administration will likely implement inflationary monetary policies to nurse the economy back to health. On that front, this is positive for Z stock.
Still, allow me to say that I’m not sure you can have a top-heavy economy with the foundation gutted out. If you’re going to gamble on Z stock, do so with “dumb” money.
Technology: Palo Alto Networks (PANW)
Regarding the best stock in each sector, the technology realm offers the easiest pathway. Frankly, you can take your pick. Want broad and safe exposure to the new normal? Try Microsoft (NASDAQ:MSFT), with its Teams platform and its association with relevant subsegments like video games. Or you can look at Nvidia (NASDAQ:NVDA), which offers a viable play on data centers and artificial intelligence.
But for this list, I’m going with Palo Alto Networks. With the initial lockdown orders, many worker bees experienced telecommuting for the first time. However, this also opens the door to those with nefarious agendas. That’s not my opinion but rather, the stark warning of U.S. Securities and Exchange Commission Chairman Jay Clayton. The reality of our times creates intense demand for PANW stock.
Sure, companies participating in remote work potentially save money on overhead costs. However, they could easily lose that and more through cyber attacks like credential stuffing, which involves criminal activity from the use of compromised client login credentials.
Plus, as Covid-19 cases rise, we may see more lockdowns across the nation. Cynically, that would spell opportunity for PANW stock.
Utilities: Duke Energy (DUK)
I’ve said it before, and I’ll say it again. People go crazy when they switch on the lights and nothing happens. That’s why I was very concerned about the rolling blackouts in California this year. While it might seem like a get-together moment with your community, that stuff gets old very quickly.
Hence, no matter what happens in the economy and society, you can depend on Duke Energy. Forget the best stock in each sector: DUK stock is a candidate for best overall investment. Indeed, as technology advances, energy consumption will only increase, not decrease.
Further, DUK stock is insulated, even longer term against the shift toward green energy. Yes, Duke has a “diverse mix of generation resources, including nuclear, coal-fired, oil- and natural gas-fired, and hydroelectric power plants.” On paper, this conflicts with the renewables’ narrative. However, renewable energy is intermittent, and has yet to adequately address the problem of spike energy consumption.
Perhaps a solution is coming. But until it does, and until it’s proven, you can trust DUK.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.