Sectors To Invest In Based On Your Trading Style

Thursday, December 3, 2020 4:35 PM | Neal Farmer

There are eleven main sectors of the stock market.

Each sector contains multiple individual industries.

Technology, for instance, is a sector while consumer electronics is an industry in the tech sector. Each sector has its own benefits as it relates to investors. Utilities might not necessarily offer the most growth potential but it makes for it with with stability especially during hard economic times. Portfolio managers should remember to diversify their portfolios across multiple sectors but depending on investment goals, certain sectors will offer more attractive investing opportunities than others.

There are three very broad categories of investors: growth investors, wealth preservation, and income investors. People can be generally placed in one of these groups but not everyone fits perfectly into a single group and your individual goals may put you in at least two categories. Still, most will closely align to one of these types and there are individual sectors that investors should prioritize in each.

Growth Investors

Technology Sector

It shouldn’t come as a surprise that investors looking for capital appreciation might be interested in the technology sector. Tech is growing at a rapid pace and has been for years. Every year people become more reliant on technology as it continues to grow and change, sometimes creating entire new industries. The coronavirus has only accelerated that process. Companies in all sorts of industries are having employees increasingly work from home and individuals choosing to purchase products online as opposed to in physical retail locations. Companies such as Salesforce (CRM), Advanced Micro Devices (AMD), Nvidia (NVDA), and Qualcomm (QCOM) look poised to continue growing into the future along with the giants such as Apple (AAPL) and Microsoft (MSFT).

Find Stocks To Buy In The Technology Sector

Communication Services Sector

Many of the big players in this sector were, until very recently, actually classified as technology stocks. Google (GOOG) and Facebook (FB) might be the first to come to mind along with telephone companies such as Verizon (VZ) and T-Mobile (TMUS). Investors should alsokeep  an eye on gaming companies such as Activision (ATVI) as that is one of the fastest growing industries currently.

Find Stocks To Buy In The Communications Services Sector

Health Care Sector

Healthcare is also a fast growing sectors due to the rapid rate of medical advancements at rapid rates. If you are going to have to pay those absurd medical bills even with insurance, then you might as well invest into the insurance company and drug manufacturer that is prospering off you and millions more. Moderna (MRNA) and Johnson & Johnson (JNJ) are two of the most recognizable companies that are solid investments for people looking to grow their portfolio. Small biotech companies carry much more risk, but can offer extremely high rewards is they manage to bring a blockbuster drug to market.

Find Stocks To Buy In The Healthcare Sector

Consumer Cyclical Sector

Finally, consumer cyclical stocks should grab capital appreciation investors attention due to their growth in stable economic times. This is a very diverse sector though and not all industries will really offer the growth potential these investors are looking for. While Amazon (AMZN), Tesla (TSLA), and Nio (NIO) might grow rapidly in the coming years, General Motors (GM) and Office Depot (ODP) might not be the right choice for capital appreciation.

Find Stocks To Buy In The Consumer Cyclical Sector

Wealth Preservation Investors

Consumer Defensive Sector

Opposite of consumer cyclical is consumer defensive where stocks should not suffer as much in a recession or bear market. This is great for people looking to preserve their wealth given their priority is for lower risk even if that means lower rewards. Companies such as Wal-Mart (WMT), Dollar Tree (DLTR), and Costco (COST) are great examples of business that will not be as impacted by a recession as other more cyclical industries.

Find Stocks To Buy In The Consumer Defensive Sector

Basic Materials Sector

Basic Materials also consist of very defensive stocks with things like copper, silver, and gold actually tending to rise in price during bear markets. Paper and wood products carry more risk with tech growth hurting those industries more but still are less cyclical than many others. Seabridge Gold (SA), FMC Corp (FMC), and Comstock Mining (LODE) are just some companies that people interested in wealth preservation might take a look at.

Find Stocks To Buy In The Basic Materials Sector

Industrials Sector

Industrials consist of a mix between defensive industries and cyclical stocks. Airlines for example are going to be much more cyclical with businesses and individuals cutting travel costs when money becomes tight. However, companies like United Parcel Service (UPS) or Waste Connections (WCN) are much more defensive. Investors should be careful when looking at industrials as depending on the particular industry, some stocks can more risk than others.

Find Stocks To Buy In The Industrials Sector

Income Investors

Utilities Sector

The electric, water, gas, and internet bills are just some utilities that most people have to pay every month. These are about as close as it gets to necessary costs when compared to travel or maybe some nice new shoes. Due to that utility stocks typically outperform most sectors during bear markets but do not grow as much when times are good. However, they also tend to offer very high dividend yields compared to most of the market. Enersis Americas (ENIA) and Spark Energy (SPKE) are two stocks that offer dividend yields over 8%.

Find Stocks To Buy In The Utilities Sector

Financial Services Sector

Financial Services could likely be placed into any one of these three groups depending on the industry, but in general it most closely aligns with income generation. Some industries carry much more risk such as banks and capital markets that are hit hard by recessions. However these stocks don't typically offer the same type of growth that technology companies do but offer sizable dividends. Bancroft Convertible Fund (BCV), Cornerstone Strategic Return Fund (CRF), and Oxford Lane Capital (OXLC) are just some investments with over a 15% dividend yield.

Find Stocks To Buy In The Financial Services Sector

Real Estate Sector

Real Estate is probably the most used sector for income generation with REITs returning large portions of profits back to investors through dividends. In fact, to even qualify as a REIT, the company must pay over 90% of its taxable income in the form of shareholder dividends every year. Washington Prime Group (WPG), Braemar Hotels & Resorts (BHR), and Taubman Centers (TCO) are just a few REITs investors looking for income generation might be interested in.

Find Stocks To Buy In The Real Estate Sector

Energy Sector

Finally, along with real estate, energy stocks are often seen as the go to for income generation. These companies offer much higher dividends than most but again do not offer the same growth potential that tech or healthcare stocks do. Antero Midstream Corp (AM), Sprague Resources (SRLP), and Summit Midstream Partners (SMLP) are a few with over 15% dividend yields.

Find Stocks To Buy In The Energy Sector

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