Big tech with strong fundamentals
Much of the pain this year has come from the technology sector: The tech-centric Nasdaq is down almost 11% in 2022, while the blue-chip heavy Dow is off just 3.8%.
But Farr reminds investors that not all tech stocks are created equal, with some carrying greater risks than others.
“During a rising rate environment, the higher multiple growth stocks and those more speculative stocks that even trade on price to sales because there are no earnings, those stocks suffer.”
On the other hand, large-cap tech stocks with rock-solid balance sheets offer investors a chance to go for growth in a relatively risk-averse fashion. One such stock that Farr singled out is Google parent Alphabet.
“Alphabet is executing very well, and it’s one I’ve owned for a very long time.”
Alphabet delivered a solid report this earnings season. In Q4, revenue grew 32% year over year to $75.3 billion. Meanwhile, earnings per share surged 38%.
Businesses that sell the basics like food and household products aren’t exactly exciting, but they can provide a steady way to make gains no matter what the economy is doing.
“I always like the consumer staples as a defensive group,” Farr said. “I love my Pepsi-Colas of the world, they tend to do well.”
With massive brands like Pepsi-Cola, Mountain Dew, Lay’s, and Quaker in its portfolio, PepsiCo’s products continue to be on millions of shopping lists around the world.
In the latest quarter, PepsiCo’s revenue grew 11.6% to $20.2 billion thanks to a double-digit increase in beverage volume.
But it’s PepsiCo’s dividend history that gives us the best insight into the business model’s durability: The company has raised its cash dividend every single year for the past 49 years.
If you don’t want to pick individual stocks, low-cost ETFs that invest in a broad range of consumer staples companies are smart options.
Names like the Consumer Staples Select Sector SPDR Fund (XLP) and the Vanguard Consumer Staples ETF (VDC) should provide a good starting point for further research.
Farr likes financial stocks as well. And it’s not hard to see why.
Tighter monetary policy is likely coming. With inflation running hot, the Fed is expected to raise interest rates multiple times this year.
Many businesses fear rising interest rates. But for certain financials, like banks, higher rates are a good thing.
Banks lend money out at higher rates than they borrow at, pocketing the difference. As interest rates increase, this earnings spread widens.
Banking giants are also well-capitalized right now and have been busy returning money to shareholders.
Last year, Bank of America boosted its quarterly payout by 17% to 21 cents per share. Morgan Stanley doubled its quarterly dividend to $0.70 per share. And JPMorgan increased its quarterly rate by 11% to $1 per share.
Investors can also get exposure to financial stocks through ETFs like the Financial Select Sector SPDR Fund (XLF) and the Vanguard Financials ETF (VFH).
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Fine art as an investment
Stocks can be volatile, cryptos make big swings to either side, and even gold is not immune to the market’s ups and downs.
That’s why if you are looking for the ultimate hedge, it could be worthwhile to check out a real, but overlooked asset: fine art.
Contemporary artwork has outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart.
And it’s becoming a popular way to diversify because it’s a real physical asset with little correlation to the stock market.
On a scale of -1 to +1, with 0 representing no link at all, Citi found the correlation between contemporary art and the S&P 500 was just 0.12 during the past 25 years.
Earlier this year, Bank of America investment chief Michael Harnett singled out artwork as a sharp way to outperform over the next decade — due largely to the asset’s track record as an inflation hedge.
Investing in art by the likes of Banksy and Andy Warhol used to be an option only for the ultrarich. But with a new investing platform, you can invest in iconic artworks just like Jeff Bezos and Bill Gates do.