Can AI Beat the Market? 10 Stocks to Watch

Artificial intelligence isn’t new to the world of stock picking, but it hasn’t really been an option for retail investors. That is, until now.

Traditionally, powerful artificial intelligence systems – and the high-octane brainpower needed to develop and run them – that target stocks to watch have been available only to hedge funds, quant funds and a select group of asset management firms.

Danel Capital, a financial advice company, aims to change all that with a new analytics platform that harnesses the power of big data technology and machine learning. The idea is to help regular investors make smarter decisions with their tactical stock picks.

Here’s how it works:

The company’s AI algorithms analyze more than 900 fundamental, technical and sentiment data points per day for 1,000 U.S.-listed shares and 600 stocks listed in Europe. Danel says that in total, its AI predictive scoring capability churns through 10,000 daily indicators. The platform then analyzes that huge amount of data to predict the future performance of each stock, calculating the probability of beating the market over the next four months.

Once the algo determines which stocks to watch, it spits out a rating known as a Smart Score, which ranges from 1 to 10. Danel says that, on average, stocks with the highest Smart Scores of nine or 10 almost doubled the S&P 500’s annualized returns from January 2017 to July 2020.

And, indeed, the top 5 rankings Danel Capital firm released in January and February beat the S&P 500 by considerable margins. The firm has since switched to issuing top 10 rankings.

Note well that we’re talking about the probability of beating the market over the next few months or so, not days. That makes the platform useful for tactical investors, not day traders.

It’s an interesting system that makes some pretty counterintuitive stock picks. Whether it proves to be a useful tool for retail investors remains to be seen, but it’s worth keeping an eye on.

Here are 10 stocks to watch over the next few months, as Danel Capital’s AI platform gives them the highest probability of beating the market in that time. All have perfect Smart Scores of 10, but for good measure, we also took a look at some fundamentals, technicals and analyst research on these names.

Share prices and other data are courtesy of S&P Global Market Intelligence as of April 6, unless otherwise noted.

1 of 10

10. Snowflake

Concept art for high-tech insuranceConcept art for high-tech insurance
  • Market value: $68.1 billion
  • Smart score: 10

Cloud infrastructure unicorn Snowflake (SNOW, $236.01) generated considerable hype when it went public in September 2020 at $120 a share, making it the largest software offering in history. 

It didn’t hurt that Berkshire Hathaway (BRK.B) – whose chairman and CEO Warren Buffett is notoriously averse to initial public offerings – got in on Snowflake’s ground floor, snapping up $250 million worth of SNOW in a private placement.

But mostly the excitement stemmed from Snowflake’s growth prospects in the rapidly expanding industry of cloud infrastructure software. Known as a cloud-data warehousing company, Snowflake lets enterprise customers run their software on various cloud platforms, be they provided by Amazon.com (AMZN), Microsoft (MSFT) or Google parent Alphabet (GOOGL), to name just three.

Investors have already included Snowflake among their stocks to watch thanks to the shares’ near-doubling since the IPO, but they’re off about 16% for the year-to-date amid a widespread selloff in the software sector. By Danel Capital’s reckoning, however, they’re poised for a rebound soon.

The firm’s proprietary AI assessment gives SNOW a Smart Score of 10, helped by strong – and rising – technical indicators and improving fundamental scores.

Wall Street likes SNOW’s prospects, too.

“Snowflake’s product architecture is superior to its rivals and that the market for cloud-hosted data analytics might be larger than investors believe,” writes UBS Global Research analyst Karl Keirstead, who rates the stock at Buy.

Of the 26 analysts covering the stock tracked by S&P Global Market Intelligence, nine rate it at Strong Buy, two say Buy and 15 have it at Hold. Their average target price of $289.92 gives SNOW implied upside of about 25% over the next 12 months or so.

2 of 10

9. Palantir Technologies

concept art for big dataconcept art for big data
  • Market value: $42.4 billion
  • Smart score: 10

Palantir Technologies (PLTR, $23.27) gets a perfect 10 Smart Score, again, thanks predominantly to strong technical grades. AI’s assessments of PLTR’s fundamentals and sentiment are more middling, but stable. Interestingly, Palantir’s daily Smart Score has been in a strong uptrend recently, nearly doubling since the end of March.

Although a Smart Score of 10 suggests that shares in the big data analytics company are a good candidate for outperformance in the shorter to intermediate term, the Street is more cautious, at least in its longer term view.

Analysts’ consensus recommendation on the name stands at Hold, according to S&P Global Market Intelligence. One analyst rates PLTR at Strong Buy, one says Buy, three have it at Hold, one calls it a Sell and two slap a Strong Sell on the stock.

Shares in the company, which went public on Sept. 30, 2020 through a direct listing, opened at $10 on their first day of trading and closed at $9.50. Although PLTR is up about 145% ever since, what stands foremost in investors’ minds is that the stock is down 35% from its late-January all-time closing high.

William Blair equity research, which rates the stock at Underperform (the equivalent of Sell), is concerned that Palantir has struggled to deliver the same type of hyper-growth in its commercial division that many of its competitors have achieved. 

“Palantir offers a unique solution, which has the potential to support growth rates in line with some of the most successful providers of enterprise software,” writes William Blair analyst Kamil Mielczarek. “However, we believe there are several risks to achieving this growth rate that are not currently priced into the stock.”

Analysts’ average price target of $25.57 gives PLTR implied upside of roughly 10% over the next year or so. So, put Palantir among your stocks to watch over the next few months to see whether the more bullish algos, or more bearish humans, are right.

3 of 10

8. Nio

Nio vehiclesNio vehicles
  • Market value: $65.5 billion
  • Smart score: 10

If you thought Tesla (TSLA) stock was a hot and volatile way to play the explosive growth in electric vehicles, take a look at shares in NIO (NIO, $40.00).

The Chinese electric-vehicle maker’s stock has outperformed TSLA by a stunning margin over the past 52 weeks – and has done so in even more volatile fashion than we’ve come to expect from the leading EV stock. 

Shares in NIO have gained more than 1,519% over the past year vs. an increase of 675% for TSLA. Of course, when comparing performance, it depends on how you draw the chart. For the year-to-date, for example, NIO is off 18% vs. a 2% drop in TSLA. 

Either way, with a perfect Smart Score of 10, Danel Capital’s AI expects NIO to return to its market-beating ways soon. Strong scores for technical and sentiment factors – and high marks for the fundamental factor of high expected revenue growth – all help propel NIO to the top of the AI list.

Investors certainly have to be pleased with some recent catalysts. Among them, NIO delivered a record number of vehicles in March. Most notably, the EV maker achieved the feat despite a global shortage of semiconductors that has forced other automakers to suspend or reduce production. 

The Street is likewise bullish on the premium EV start-up company. Of the 18 analysts covering NIO tracked by S&P Global Market Intelligence, six rate the stock at Strong Buy, five say Buy and seven call it a Hold. Their consensus recommendation comes to Buy.

UBS Global Research analyst Paul Gong isn’t quite so enthusiastic. He rates NIO at Neutral (Hold), citing risks such as weaker-than-expected demand; fierce competition, including the local production of Tesla; and a potential decline in government subsidies for the EV industry.

4 of 10

7. Albemarle

Lithium-ion batteryLithium-ion battery
  • Market value: $17.8 billion
  • Smart score: 10

Albemarle’s (ALB, $152.89) specialty chemicals products work entirely behind the scenes, from clean-fuel technologies to pharmaceuticals to fire safety. But what puts Albemarle among the market’s top stocks to watch right now is lithium.

The world’s need for higher-capacity rechargeable batteries was already insatiable. And now that electric vehicles have entered the scene? Forget about it.

That’s why it makes perfect sense that Albemarle’s top Smart Score is driven by a blemish-free rating of its fundamentals. Danel Capital’s AI also assigns it a near-perfect score on the stock’s technical considerations.

The algo’s reading on sentiment, however, is relatively low, scoring only a three out of 10. That helps explain the Street’s mixed view on the stock and its consensus recommendation of at Hold.

Although the accelerating pace of global EV sales bodes well for lithium demand, some analysts think ALB stock may have gotten ahead of itself at current levels. 

“Our lithium outlook is improving, and we think ALB will be well positioned for growth through capacity expansions,” writes CFRA Research analyst Richard Wolfe. “However, we think shares’ lofty valuation captures much of this benefit, so we stay at Hold.”

Danel Capital’s AI suggests that ALB is a good current stock pick for tactical investors. But it also happens to be worth a closer look if you’re a longer term dividend growth investor. Indeed, ALB is a member of the S&P Dividend Aristocrats, an elite list of S&P 500 companies that have raised their dividends for at least 25 consecutive years. Albemarle last hiked its payout in February 2021, by 1.3% to a quarterly 39 cents a share. The move represented the firm’s 27th consecutive annual increase.

5 of 10

6. Ebix

image of man with charts and graphsimage of man with charts and graphs
  • Market value: $987.7 million
  • Smart score: 10

Artificial intelligence – and its forerunner of quantitative analysis – in a sense puts blinders on. Data, not headlines, drives decisions. Whether that’s the best approach to take with a company like Ebix (EBIX, $31.90) is a matter of debate.

Ebix, which specializes in software and services to the insurance, health care and financial industries, saw its shares tumble by more than 50% over two sessions in late February after its auditor resigned.

The whiff of accounting issues has yet to be resolved, but shares have clawed back some of their losses. EBIX is now off about 16% for the year-to-date and, by some measures, trading at bargain-basement levels.

Interestingly, EBIX scores high in all three categories of Danel Capital AI’s Smart Score system, garnering sevens (out of 10) for fundamentals and sentiment, and an almost-perfect nine in technicals.

As for the fundamentals, the algo gives Ebix high marks for free cash flow, or money available to shareholders if the company decides to distribute it. And, indeed, the company generated free cash flow (after debt payments) of $59.5 million for the 12 months ended Sept. 30, 2020. That’s a notable figure given that the company generated net income of $94.5 million over the same 12-month period.

Valuation is another plus – shares are trading at less than 10 times at estimated earnings for 2021.

While Danel Capital has EBIX among its stocks to watch right now, it’s barely a blip on most analysts’ radar. The lone pro covering the stock tracked by S&P Global Market Intelligence is likewise bullish, giving it a Strong Buy recommendation.

6 of 10

5. American Airlines

American Airlines planeAmerican Airlines plane
  • Market value: $15.4 billion
  • Smart score: 10

American Airlines (AAL, $24.06) – and indeed much of the rest of the air carrier industry – is considered by the Street to be among the ultimate recovery plays.

Danel Capital’s algo certainly thinks so, giving it a perfect Smart Score with strength across the board. AAL gets a 10 for fundamentals and ratings of nine on both sentiment and technicals. 

Notably, daily sentiment scores on the name have been in a steep uptrend since the end of March, while fundamental readings have remained perfect on a daily basis for even longer. Readings on technicals have likewise bounced higher in April.

The Street, however, is less sanguine on AAL, with a consensus recommendation of Sell. Of the 22 analysts covering the stock tracked by S&P Global Market Intelligence, two rate it at Strong Buy, eight say Hold, four call it a Sell and seven say Strong Sell. One has no opinion on the name.

Stifel equity research, which rates AAL at Hold, says it has reservations based on the company’s ability to navigate a challenging post-pandemic landscape. 

“American Airlines faces significant earnings pressure and uncertainty related to COVID-19, the pace of a recovery, and its ability to solve the margin challenges it faced pre-COVID,” writes Stifel analyst Joseph DeNardi in a note to clients. 

Argus Research also remains cautious on the stock.

“We are maintaining our Hold rating on AAL, which had been hurt by the 737 MAX groundings, is now wrestling with COVID-19 and high debt levels,” writes analyst John Staszak. “With air travel demand remaining weak, we think that lower operating expenses and a low interest rate environment will provide only partial relief to American and other airlines.”

7 of 10

4. Zoom Video Communications

A person using video conferencingA person using video conferencing
  • Market value: $96.9 billion
  • Smart score: 10

Zoom Video Communications (ZM, $329.79) has been among the Street’s top stocks to watch ever since the pandemic. Few companies have benefited from the work-from-home economy as much as Zoom – and Danel Capital’s algos think there is more upside ahead.

The video conferencing company’s perfect Smart Score is driven by high marks for technicals and sentiment, which offset a somewhat more middling rating in fundamentals.

The Street likes what it sees, too. Analysts consensus recommendation works out to a Buy, according to S&P Global Market Intelligence. The breakdown comes to eight Strong Buy recommendations, three Buys, 14 Hold calls, one Sell and one Strong Sell.

Although shares in Zoom are up about 170% over the past 52 weeks, they’ve been trending lower since October. And as for the year-to-date? ZM is off 2.2% vs. a gain of 6% for the tech-heavy Nasdaq Composite index.

An accelerating vaccination campaign against COVID-19 and the green shoots of a return to pre-pandemic routines doesn’t necessarily bode well for ZM, but bulls say any pessimism over the stock’s prospects is overdone.

William Blair equity research, for example, expects Zoom’s momentum to continue in 2021 after posting “blowout” quarterly results to cap off an “incredible” year.

“We continue to believe that Zoom is benefiting from strong secular tailwinds in a large and underpenetrated market and expect that the company can continue to show strong growth for years to come,” analyst Matt Stotler, who rates the stock at Outperform (Buy), writes in a client note.

With an average target price of $462.72, analysts give ZM stock implied upside of about 40% in the next 12 months or so. They expect the company to generate average annual EPS growth of 15.6% over the next three to five years, according to S&P Global Market Intelligence.

8 of 10

3. Bluebird Bio

image of man with charts and graphsimage of man with charts and graphs
  • Market value: $2.0 billion
  • Smart score: 10

Bluebird Bio (BLUE, $30.16), a biotechnology company that develops gene therapies for both severe genetic diseases and cancer, gets high ratings in all three of Danel Capital’s major rating categories. It also gets high marks from the Street.

The algo gives it scores of seven, eight and seven for fundamentals, technicals, and sentiment, respectively. At the same time, the human consensus recommendation stands at Buy. 

Complicating matters is that following a series of setbacks, the company in January said it will split into two separate entities, with one focusing on cancer and the other on rare diseases.

The problem, as Raymond James analyst Dane Leone puts it, is what is the value of Bluebird Bio with the split looming later this year? As a result, the analyst rates BLUE at Hold.

Another challenge stems from regulatory uncertainty surrounding the company’s development of LentiGlobin. The Food and Drug Administration in February put trials of the gene therapy on clinical hold.

Although the consensus recommendation stands at Buy, analysts are pretty closely split on the name amid all the uncertainty. Of the 24 analysts covering BLUE tracked by S&P Global Market Intelligence, nine rate it at Strong Buy, one says Buy and 14 call it a Hold.

Their average target price of $47.89 gives BLUE implied upside of nearly 60% over the next 12 months or so. Keep in mind that the stock is off 30% so far in 2021.

As with Ebix above, Bluebird Bio appears to be one of the more speculative bets on the AI list.

9 of 10

2. TechnipFMC

oil services workeroil services worker
  • Market value: $3.5 billion
  • Smart score: 10

The energy sector is loaded with recovery plays. TechnipFMC (FTI, $7.65), an oil and gas services company, could be one of the better ones, according to Danel Capital’s AI.

FTI’s perfect Smart Score is based on a rating of nine for fundamentals, and 10s for both technicals and sentiment. 

The Street is mostly bullish too, with a consensus recommendation of Buy. Of the 25 analysts covering FTI tracked by S&P Global Market Intelligence, 11 call it a Strong Buy, two say Buy, 11 rate it at Hold and one has it at Sell. Their average price target of $10.89 gives the stock implied upside of about 40% in the next 12 months or so. 

The slow reopening of the global economy is bullish for oil prices, and the market has been rewarding the sector handsomely. Indeed, energy has been the S&P 500’s best-performing sector so far this year, with a gain of 29% through April 6. 

FTI, down about 18% for the year-to-date, hasn’t participated in the rally. But it’s among Wall Street’s best stocks to watch right now because the bulls – and the algos – say it’s only a matter of time. 

“In the Surface Technologies segment, we expect higher international activity to offset modest-to-lower North American activity in 2021,” writes CFRA Research analyst Andrzej Tomczyk, who rates shares at Buy. “The Subsea segment should also see growth, given renewed operator confidence amid the improved macro environment and higher oil prices.”

10 of 10

1. Alaska Air

An Alaska Air planeAn Alaska Air plane
  • Market value: $9.2 billion
  • Smart score: 10

Alaska Air (ALK, $73.74) is set to benefit disproportionately from a recovery in the air travel sector, analysts say. And Danel Capital AI’s assessment suggests shares will take off soon.

ALK gets perfect scores of 10 on fundamentals, technicals and sentiment. With shares up nearly 42% for the year-to-date, it’s fair to say the market and Danel’s AI are of the same mind.

On the Street, analysts emphasize the air carrier’s unusually strong fundamentals in an otherwise battered industry. 

“We believe ALK’s combination of a conservative balance sheet and its historically high cash generation per plane will make it among the first U.S. airlines to recover profitability this year,” writes CFRA analyst Colin Scarola, who has a Buy recommendation on the stock. “ALK also has modest equipment purchase commitments for 2021-2022, in our view, with 2022 commitments equating to only 32% of 2019 operating cash flow.”

At Stifel, analyst Joseph DeNardi, who rates ALK at Buy, believes the airline’s geographic service area lowers the risk that it emerges from the pandemic facing significantly lower structural demand.

But Alaska Air also is among the best stocks to watch right now for its M&A potential. For example, what if the pandemic and its aftermath trigger a painful reckoning in the industry, leading to consolidation?

In that case, “Alaska would be a highly valued asset,” DeNardi writes.

The bulk of the Street sides with the bulls on ALK, with nine Strong Buy calls, three Buys and two Hold recommendations. Add it all up and the consensus recommendation comes to Buy, according to S&P Global Market Intelligence.

Source: kiplinger.com

Benefits of an Employer Tuition Reimbursement Program & Policy

While they may not have a line item on a balance sheet, employees are your company’s most important asset. Their knowledge, skill sets, and expertise impact your ability to keep customers or clients satisfied and improve your bottom line.

A tuition reimbursement program is an employee perk that shows you’re invested in their long-term success.

What is Tuition Reimbursement?

Just as it sounds, tuition reimbursement in an employee benefit program or policy where the employer pays back employees for education expenses. Although the program’s rules vary from employer to employer, most cover the cost of tuition as well as textbooks and other required course materials.

Employees still have to pay out of pocket for the courses they take, but when the course is over, the employee can get back some or all of their tuition expenses. At some institutions, students with financial constraints qualify to defer payment until their coursework is complete.


Advantages of an Employer Tuition Reimbursement Program

The Society for Human Resource Management (SHRM) 2019 Employee Benefits survey notes more than half of employers (56%) offer some sort of tuition or student loan repayment assistance for employees, so education is clearly a priority for businesses.

1. More Skilled Employees

As the International Labour Organization (ILO) states, “Many of today’s skills won’t match tomorrow’s jobs, and skills acquired today may quickly become obsolete.” So workers need to update their skills on an ongoing basis.

Investing in your employee’s education can help you custom-build the skills, talent, and expertise you need to grow your business today and in the future.

2. Higher Retention Rates

Employees who take advantage of tuition reimbursement tend to stay with the company longer.

The Harvard Business Review noted one powerful example: when Fiat Chrysler Automobiles partnered with Strayer University to allow its dealership employees and their families to earn a degree free of charge, participating dealerships saw employee retention rates increase by nearly 40%.

3. Lower Recruiting Costs

Companies can promote educated employees to higher-level positions, saving the company time and money compared to filling vacancies with outside talent.

According to SHRM, the average cost of hiring a new employee is $4,425, or $14,936 for hiring an executive. That includes the cost of advertising the position, training, conducting interviews, and providing new hire orientation. Plus, it can take months for the new hire to acclimate to company culture and become fully productive.

On the other hand, promoting people from within generates little if any additional cost to the company.

4. Tax Breaks

The IRS allows employers to write-off up to $5,250 of tuition reimbursements per employee per year. These reimbursements are considered a tax-free fringe benefit, so they aren’t included in the employees’ wages, and the employer doesn’t have to pay Social Security, Medicare, federal or state unemployment taxes on the reimbursement.

To qualify for this tax perk, the tuition reimbursement plan has to be in writing and meet other requirements, including:

  • The program can’t favor highly compensated employees — generally defined as someone who owns at least 5% of the business or received more than $130,000 of compensation in the prior year.
  • The program doesn’t provide more than 5% of its benefits to shareholders, business owners, or their spouses or dependents.
  • The program doesn’t allow employees to opt to receive cash or other benefits instead of educational assistance.
  • All eligible employees have to receive reasonable notice of the program.

You can find more information about the IRS requirements for educational assistance benefits in IRS Publication 15-B.


Eligibility for Reimbursement

Employers can determine their conditions for reimbursement of employee tuition. Some common conditions include:

Length of Service and Performance

The first condition that may limit eligibility is length of service. Many employers offer tuition reimbursement only to full-time employees who have worked at the company for at least six months to a year. They also require the employee to still be employed with the company when they complete the course.

Employers can also require that the employee is meeting all performance expectations for their current position or require that the employee hasn’t been formally disciplined during the previous six to 18 months. The definition of discipline can vary from company to company but typically includes written warnings, demotions, or suspensions.

Program of Study

The next condition that may hinder eligibility is course of study. Many employers require that the courses or degree program can be applied within the organization. For example, a consulting firm may broadly define relevant subjects; on the other hand, a small IT firm may only reimburse specific technology-related courses.

The program can also require the employee to take classes only at a pre-approved educational institution such as a local university or community college or an accredited online college.

Cost

Another potential condition is the level of cost the company is willing to reimburse. Most tuition reimbursement programs have an annual cap on what they’ll cover. This limit varies greatly from company to company, but most employers base their caps on IRS limits.

As mentioned above, the IRS allows employers to deduct up to $5,250 of tuition costs per employee each year. Employers who pay more than $5,250 for an employee’s educational benefits during the year have to include it in the employee’s wages and pay all applicable payroll taxes, thus negating the tax benefits of the program.

Grades

An employer can require the employee to earn a passing grade to qualify for tuition reimbursement. For example, the policy may require that the employee passes the course with a letter grade of C or better.

Employers can also have scaled grade requirements. For example, the employer’s tuition reimbursement plan may specify that an A grade receives full reimbursement, a B grade receives 80% reimbursement, a C grade garners 60% reimbursement, and anything below a C is not eligible.


Final Word

A tuition reimbursement program is an attractive benefit that can help companies find, develop, and hold on to skilled talent. How you design your program depends on the needs of your business and employees.

If you want to try it out, consider starting by reimbursing employees for one work-related course per year, subject to manager approval. This will give you an idea of how popular the program will be with your employees, and you can decide whether to expand it in the future.

Source: moneycrashers.com

5 Best Industrial Stocks to Buy in 2021

The industrial sector helped to build the United States as we know it today. It all started in the late 1700s when Samuel Slater opened the first industrial mill in Pawtucket, Rhode Island. However, there’s a bit of a dark history surrounding this mill.

Many argue that the cotton mill Slater launched was the result of a design that was stolen from a British model, making the industry one that was built on intellectual property theft. Nonetheless, industrial textiles would drive the beginning of the United States’ industrial revolution.

Today, the American industrial sector produces far more than textiles. The majority of U.S. industry is centered around the distribution of machinery, equipment, and supplies used in the manufacturing, construction, and defense sectors.

Everything from raw materials, like iron, to safety products, machined components, and logistics solutions fall into the industrial category.

Pro tip: Earn a $30 bonus when you open and fund a new trading account from M1 Finance. With M1 Finance, you can customize your portfolio with stocks and ETFs, plus you can invest in fractional shares.

Best Industrial Stocks to Buy Now

As with any other sector, all stocks in the industrial sector are not created equal. Some industrial stocks have a strong track record of solid performance, while others don’t. As such, picking the right stocks when investing in the space is extremely important. Here are five of the top industrial stocks to watch.

1. Raytheon Technologies (NYSE: RTX)

Raytheon Technologies was recently founded, coming to life in April of 2020 as the result of a merger. However, its component companies have a long history in the industrial sector.

The two companies that merged to create Raytheon Technologies were Raytheon Company and United Technologies, founded in 1922 and 1934, respectively. Between the two, there are almost two centuries of dominance in the industrial sector.

The combined company works across several subsectors of industry. Its main focus is aerospace and defense, with the company specializing in missile defense, cybersecurity, electronic warfare, and precision weapons.

This core focus on aerospace and defense offers up a strong strategic advantage. While most companies in the industrial sector are cyclical, or at the mercy of economic conditions, Raytheon Technologies is shielded from economic hardship. The vast majority of the company’s business comes from the U.S. government, which provides a steady stream of revenue for the company regardless of economic conditions.

Nonetheless, this can sometimes prove to be a negative. Because Raytheon is a defense contractor, the company is dependent on the defense budget and heavily exposed to the political risks associated with it.

Raytheon Technologies is currently working to solve this problem. In order to reduce its exposure to the risk of U.S. defense budget tightening, the company is increasing its focus on diversification into the aerospace industry as well as international sales of its defense technology.

In fact, the company even pushed into the personal protective equipment market during the coronavirus pandemic.

As you could imagine, these types of moves cost quite a bit of cash. Raytheon has an incredibly strong balance sheet, featuring plenty of cash to foot the bill. The balance sheet at the company is so strong that it not only has the cash to expand into aerospace and international markets, but also continues to return value to investors by repurchasing stock and paying hefty dividends.

At the moment, Raytheon’s dividend yield sits at 2.59%, making it a great option for those looking for both industrial and dividend stocks.

While the stock was a victim of the COVID-19 pandemic, investors are beginning to realize that the stock price declines actually created a discounted opportunity to get in on future gains. As a result, Raytheon has seen strong valuation growth year-to-date, climbing from around $68 per share to around $75 per share.

With a strong history of service to the U.S. defense sector, increasing uptake of the company’s products on the international stage, and innovation in the aerospace sector, Raytheon Technologies’ stock is already one for the watchlist. Add in a nearly perfect balance sheet, aggressive dividend payments, and valuations that are far lower than they should be, and you’ve got a stock that’s hard to ignore.


2. General Electric (NYSE: GE)

The beginning of 2020 was painful for General Electric. Unfortunately, as the coronavirus pandemic took hold, industrial stocks across the board took a beating. However, GE began making a strong recovery toward the end of the year and into early 2021.

General Electric’s products play a big role in Boeing (BA) jet engines and gas turbines. Unfortunately, with the dangers of contracting COVID-19 in mind, the travel industry has come to a standstill, with few passengers willing to fly. That is beginning to change as vaccines make their way into arms and consumers become more willing to venture away from home.

The good news is that even through the pandemic, GE had something going for it: the company’s health care arm became increasingly active. Some believe the stock was — and still is — undervalued as a result of the coronavirus pandemic.

GE has already benefited from declining COVID-19 numbers, and this trend is expected to continue. Many analysts suggest General Electric will make a return to profitability in early 2021.

Nonetheless, it is important to consider the risks. Wall Street experts point to General Electric’s aviation portfolio as the strongest part of its business. This portion of the business will not make a full recovery until consumers feel safe flying again, which could take some time, even as COVID-19 case counts decline.

General Electric is a longstanding company that has been through its fair share of hard times. All in all, if you’re looking for a potentially high-growth stock as the economy continues to recover from the pandemic and you would like to stay within the industrial sector, General Electric is one that’s well worth considering.

Pro tip: Before you add any stocks to your portfolio, make sure you’re choosing the best possible companies. Stock screeners like Trade Ideas can help you narrow down the choices to companies that meet your individual requirements. Learn more about our favorite stock screeners.


3. 3M (NYSE: MMM)

3M is one of the most diversified companies in the industrial sector. In fact, industrial is only one of the four major sectors in which the company operates; 3M is also a major player in the transportation and electronics, technology, health care, and consumer goods sectors.

As a result of this diversification, 3M currently delivers thousands of different products to consumers, corporations, and municipalities alike, and its innovation isn’t likely to come to an end anytime soon. In fact, throughout the company’s history, it has put around 30% of its free cash flow and borrowing power back into research and development.

As a result of this capital allocation strategy, the company has done a great job of keeping its competitors at bay. This has allowed 3M to consistently deliver solid revenue and earnings growth and free cash flow, even through tough economic times. Perhaps that’s why 3M stock has seen one of the strongest recoveries among industrial stocks since the start of the COVID-19 pandemic.

The company also greatly values its investors. Throughout its history, it has consistently provided 30% of its free cash as a return of value to investors through growing dividends. In fact, 3M has increased its dividend payout every year for more than 50 years, and there’s no sign of slowing on that front. The stock has traded with an average dividend yield of 2.82% over the past five years according to YCharts. Moreover, the company is known for repurchasing shares, further returning value to its shareholders.

With the cash that’s not used for dividend payments and research and development, 3M tends to complete accretive acquisitions, adding to the underlying value a share of the company’s stock holds.

Considering the continued innovation at 3M, the company’s dedication to its investors, and a fortress of a balance sheet, 3M is a stock that’s well worth your attention.


4. Lockheed Martin (NYSE: LMT)

Lockheed Martin is another industrial stock that has seen serious declines as a result of the COVID-19 pandemic. The company’s core focus is within the aerospace and defense subsectors of the industrial sector. The company has a long history of serving the United States military with advanced technology systems designed to give the U.S. a competitive edge.

Relying extensively on contracts with the military can be risky business because budgetary restraints may hinder growth. Lockheed Martin hedges its bets on business with the U.S. government by also serving some of the biggest companies in the aerospace industry. The company provides key technological components found in many aircraft today, and continues to research and innovate in order to maintain its top-dog position.

While Lockheed Martin’s steady stream of cash from the U.S. government has served it well during the COVID-19 pandemic, it’s activities in the aerospace industry have seen some slowing, as can be expected with the vast majority of consumers being afraid to travel.

Nonetheless, Lockheed Martin is an industrial stock that represents yet another COVID-19 bounce-back opportunity. As consumers begin to venture out of their homes and into the wild again, demand for the company’s products and services in the aerospace sector will likely recover, leading to a strong bounce-back in the price of the stock.

Even through the COVID-19 pandemic, Lockheed Martin’s financial resilience has been clear. The company has even continued to pay dividends to investors and plans to keep doing so. The stock has traded with a dividend yield averaging 2.52% over the past five years, according to YCharts. With such a strong dividend yield, even with coronavirus weakness in mind, Lockheed Martin makes a strong income investment.

Adding to the opportunity here is the fact that, although many industrial stocks have made a strong comeback since the coronavirus pandemic set in, Lockheed Martin isn’t one of them. While it’s definitely not trading at lows, there’s a clear argument that the stock is still highly undervalued compared to its peers, making it a strong play for the value investor.

With the financial backing associated with the work the company does in the defense sector, a strong history of dividend payments, displays of financial resilience throughout the COVID-19 pandemic, and what appears to be a heavy discount on the stock, Lockheed Martin is one of the top industrial stocks to buy right now.


5. Honeywell (NYSE: HON)

Honeywell is another industrial stock that took a major hit as a result of the COVID-19 pandemic. However, unlike Lockheed Martin, Honeywell has made a strong recovery, now trading well above the bargain levels it was trading at when the pandemic took hold of the market.

As one of the largest industrial companies in the world, Honeywell has its fingers dug deep into the Internet of Things (IoT), aerospace, cybersecurity, and several other corners of the industrial sector.

The company’s aerospace division is touted by Wall Street experts as the most important segment of Honeywell. The company’s technology is a common component in all areas of aircraft, including commercial, defense, and space travel. Due to the COVID-19 pandemic, far fewer consumers are willing to travel, throwing a stick into the spokes of the aerospace industry. So, while the company has made a strong recovery to date, there is still plenty of room for growth as consumers begin to travel again.

The New York Times recently published an article suggesting the pandemic in the United States could be over sooner than once predicted, perhaps as early as mid-2021. COVID-19 vaccines are already hitting the market and becoming increasingly available in the U.S. and around the world. When the pandemic passes, consumers will likely be itching to do so, which could lead to an incredible rebound for the airline industry and all who serve it.

Nonetheless, throughout the pandemic, Honeywell’s fundamentals have remained strong. In fact, with a strong balance sheet, the company continued paying dividends to its investors, even in the depths of the pandemic.

Honeywell is a massive company that got where it is as a result of tremendous innovation, great management, and a respect and appreciation for its investors. Although the stock has already made a strong recovery from pandemic-related lows, there’s still plenty of room for growth as the aerospace industry has yet to come back to life.


Consider Buying Industrial ETFs

Investing in individual stocks can be rewarding, but can also be a daunting task. The most successful investments are generally the result of detailed research that takes quite a bit of time.

However, there is one way you can gain access to the industrial sector without having to devote so much time to research. Simply invest in industrial-focused exchange-traded funds (ETFs). Industrial-focused ETFs are a great option for a novice investor or if you simply don’t have the time to do adequate research on multiple individual industrial stocks.

Keep in mind that ETF investing isn’t research-free investing. It’s still important to look into a fund’s historic performance, expense ratio, and holdings before diving in.


Final Word

The industrial sector helped to strengthen the U.S. economy early on and continues to do so today. At the same time, the growth in the sector has led to incredible investment opportunities over time.

However, if you’re going to invest in the industrial sector, it’s important to keep in mind that the sector is cyclical in nature. Investing in stocks that also have offerings in other sectors or manufacture products for the government can help reduce the risks associated with these cyclical plays.

As stocks in the industrial sector continue to make strong recoveries, compelling opportunities in the space are beginning to emerge. With vaccines and treatments becoming available and the pandemic becoming a thing of the past, the recovery in the industrial sector as a whole will likely be impressive, suggesting that now is the time to consider opportunities in the space.

Disclosure: The author currently has no positions in any stock mentioned herein nor any intention to hold any positions within the next 72 hours. The views expressed are those of the author of the article and not necessarily those of other members of the Money Crashers team or Money Crashers as a whole. This article was written by Joshua Rodriguez, who shared his honest opinion of the companies mentioned. However, this article should not be viewed as a solicitation to purchase shares in any security and should only be used for entertainment and informational purposes. Investors should consult a financial advisor or do their own due diligence before making any investment decision.

Source: moneycrashers.com

What Are the Different Types of Debt?

Debt may seem like something you want to avoid. But having some debt can actually be a good thing, provided you can comfortably afford to make your payments each month.

A good payment history shows lenders that you can be responsible with borrowed money, and it will make them feel better about lending to you when the time comes for you to make a big purchase, like a home.

But not all debt is created equal. Consumer debt can generally be broken down into two main categories: secured and unsecured. Those two categories can then be subdivided into installment and revolving debt.

Each type of debt is structured differently and can affect your credit score in a different way.

Here are some helpful things to know about the different types of debt, plus how you may want to prioritize paying down various balances you may already have accumulated.

Secured vs. Unsecured Debt

The first distinction between types of debt is whether it’s secured or unsecured. This indicates your level of liability in the event you fall behind on payments and go into default on the loan or credit card.

Secured Debt

Secured debt means you’ve offered some type of collateral or asset to the lender or creditor in exchange for the ability to borrow funds. If you go into default on the loan, the lender may seize the property or asset used to secure the debt.

The benefit is that you improve your odds for approval by offering collateral, and you may also receive a better interest rate compared to unsecured debt. But you also risk losing your asset. The lender is typically allowed to seize the asset securing the debt and sell it to offset the loan balance.

interest-only mortgages.

Rather than actually making that large payment at the end of the loan term, borrowers typically refinance the loan to a more traditional mortgage.

Installment loans can have either a fixed or adjustable interest rate. If your loan has a fixed rate, your payments should stay the same over your entire term, as long as you pay your bill on time.

A loan with an adjustable rate will change based on the index rate it’s attached to. Your loan terms tell you how frequently your interest rate will adjust.

Provided you make your payments on time, having a mortgage, student loan, or auto loan can often help your credit scores because it shows you’re a responsible borrower.

In addition, having some installment debt can help diversify your credit portfolio, which can also help your scores.

Revolving Debt

Unlike installment debt, revolving debt is an open line of credit. It gives you an amount of available credit that you can draw on and repay continually.

Both credit cards and lines of credit are common examples of revolving credit. Instead of getting a lump sum at one time (as you would with installment debt), you only use what you need–and you only pay interest on the amount you’ve drawn.

Your available credit decreases as you borrow funds, but it’s replenished once you pay off your balance.

Revolving debt can be unsecured, as in the instance of a credit card, or it can be secured, such as on a home equity line of credit.

debt payoff strategies that can help you prioritize your payments.

Paying off the Highest Interest Debt First

If your primary goal is to save money over the life of your loans,you may want to start by paying off your highest interest rate loan first, while making just the minimum payments on everything else.

You can then move on to the next highest and next highest until your debts are paid off. This payoff approach is often referred to as the “avalanche” approach.

Paying off the Debt with the Smallest Balance First

Paying down debt can feel never-ending, so it can be nice to feel like you’re making progress. By focusing on your smallest debts first (and paying the minimum on everything else), you can cross individual loans off your balance sheet, while quickly eliminating monthly payments from your budget.

Once paid off, you can then reroute those payments to make extra payments on larger loans, an approach often referred to as the “snowball” method.

Considering Debt Consolidation

If you don’t see a clear strategy for paying off your debt, you might consider taking out a single personal loan to consolidate your other balances.

If your credit score has increased, this may be a good way to decrease your overall interest rate. But at a minimum, this move can help streamline your payments.

Being Wary of Debt Settlement Companies

If you’re feeling overwhelmed by debt, you may look for a shortcut with a debt settlement company.

Debt settlement is a service typically offered by third-party companies that allows you to pay a lump sum that’s typically less than the amount you owe to resolve, or “settle,” your debt. These companies claim to reduce your debt by negotiating a settlement with your creditor.

Paying off a debt for less than you owe may sound great at first, but debt settlement can be risky.

For one reason, there is no guarantee that the debt settlement company will be able to successfully reach a settlement for all your debts–and you may be charged fees even if your whole debt isn’t settled.

Also, if you stop making payments on a debt, you can end up paying late fees or interest, and even face collection efforts or a lawsuit filed by a creditor or debt collector.

The Takeaway

At some point in your life you may be juggling one or more of these different kinds of debt–a student loan, a car loan, credit card debt, a mortgage, and a line of credit.

Understanding the various types of debts and maintaining a varied mix of loans (including secured, unsecured, installment, and revolving) can help you increase your creditworthiness.

You can also improve your credit by making all of your debt payments on time, and keeping balances on revolving credit (like credit cards) low.

To help make managing your debt (and all your other expenses) easier, you may want to consider getting a budgeting app, such as SoFi Relay.

SoFi Relay connects all of your counts on one mobile dashboard and allows you to track your spending, stay on top of debt payments, and also track your credit score (at no cost), with weekly updates so you’ll know when your score changes.

Get ahead of your debt with SoFi Relay.


SoFi’s Relay tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOCO21002

Source: sofi.com

‪11 Recovery Stocks That Could Get a Stimulus Spark‬

The Biden administration’s historic $1.9 trillion stimulus spending plan should go a long way toward helping America recover from the ravages of the COVID-19 pandemic. It should also create opportunities for investors to capture the upside in a number of “recovery stocks.”

The market, as we are so often told, is forward-looking, so share prices in many cases should already reflect the river of recovery funds coming companies’ way. But that doesn’t mean every stock that stands to benefit from a recovery is tapped out.

As part of this COVID-19 rescue plan, millions of Americans will receive $1,400 stimulus checks. Multiple surveys show that a significant number of them plan on investing at least some of their stimulus checks in the stock market. Notably, a recent report from Deutsche Bank found that retail investors between 35 and 54 years old plan to spend 37% of their stimulus checks on stocks. And half of respondents between 25 and 34 years old plan to invest 50% of their checks in the stock market.

Companies that benefit from both an increase in revenue as we proceed toward a general reopening of the economy, as well as from an influx of retail investors’ stimulus money, are kind of the ultimate recovery stocks.

To get a sense of the best recovery plays amid the flow of stimulus funds, we searched the Russell 1000 for analysts’ favorite names in key, economically sensitive sectors. After digging through the fundamentals, analysts’ recommendations and research, we settled on these 11 names as the best recovery stocks to buy now.

Data is as of March 11. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Analysts’ ratings provided by S&P Global Market Intelligence.

1 of 11

Expedia Group

Travel websiteTravel website
  • Market value: $24.9 billion
  • Dividend yield: N/A
  • Analysts’ opinion: 12 Strong Buy, 3 Buy, 14 Hold, 1 Sell, 0 Strong Sell

Expedia Group (EXPE, $171.08) is one of several recovery stocks that have shot out of the gate in 2021, but analysts still say EXPE has plenty more room to run.

Sign up for Kiplinger’s FREE Investing Weekly e-letter for stock, ETF and mutual fund recommendations, and other investing advice.

Shares are up by about roughly 30% for the year-to-date – and a whopping 275% from their 52-week closing low of $45.65 on March 18, 2020.

As much as last year’s selloff was clearly overdone, analysts say the market still is undervaluing the company’s earnings prospects as we inch closer to a post-pandemic world.

Argus Research analyst John Staszak upgraded EXPE to Buy from Hold in late February, citing increased January bookings and the likelihood the travel site will post above-peer-average profit growth this year, recovering from sharp losses in 2020.

“We also look for an accelerated recovery in 2022, helped by the broad distribution of coronavirus vaccines,” Staszak writes. “Our long-term rating remains Buy based on our expectations for continued post-pandemic growth in online purchases of airline tickets, hotel rooms and other travel services.”

Analysts forecast EXPE to generate average annual earnings growth of 16.5% over the next three to five years – and that’s after including an estimated loss of 59 cents a share on an adjusted basis in 2021. Revenue, meanwhile, is forecast to bounce back 43% this year, then another 40% in 2022.

2 of 11

Bank of America

Bank of America buildingBank of America building
  • Market value: $321.7 billion
  • Dividend yield: 1.9%
  • Analysts’ opinion: 11 Strong Buy, 6 Buy, 8 Hold, 1 Sell, 1 Strong Sell

Bank of America (BAC, $37.24), as well as other sprawling money-center banks, are among the best recovery stocks. That’s because they act as a bet on both domestic and international growth trends, both of which will come bouncing back as we progress in the pandemic recovery.

But BofA is also a bet on the increasing digitization of banking for retail and enterprise customers, notes Piper Sandler’s Jeffery Harte.

“While the low interest rate environment creates meaningful revenue headwinds in consumer banking, we believe BAC will be a leading beneficiary of the pandemic-driven acceleration toward digital banking and reiterate our Overweight rating,” he says.

The analyst adds that “BAC remains relatively asset sensitive at a time when rising long-term interest rates suggest that the market finally sees some ‘light at the end of the tunnel’ for near zero interest rates.”

Importantly, BofA has scale at a time when it matters more than ever before in the banking industry, Harte says.

Deutsche Bank’s Matt O’Connor adds that BAC, which he rates at Buy, is one of his top picks among U.S. bank stocks.

Analysts’ consensus recommendation on Bank of America comes to Buy, according to S&P Global Market Intelligence.

3 of 11

Anheuser-Busch InBev

Bud Light Opens “B.L. & Brown's Appliance Superstore” In Cleveland for Two Day Pop-Up on September 3, 2019.Bud Light Opens “B.L. & Brown's Appliance Superstore” In Cleveland for Two Day Pop-Up on September 3, 2019.
  • Market value: $123.1 billion
  • Dividend yield: 2.3%
  • Analysts’ opinion: 6 Strong Buy, 0 Buy, 5 Hold, 0 Sell, 0 Strong Sell

Anheuser-Busch InBev (BUD, $62.37) took a big hit from sales of beverages at bars, restaurants, sporting events and everywhere else consumers drink beer away from home.

And even if their customers imbibed a bit more than they usually would in the privacy of their own dwellings, the world’s largest brewer – responsible for the Budweiser and Bud Light brands, as well as Beck’s, Cass, and even Corona and Modelo (outside of the U.S.) – still is set to lap increasingly easy year-over-year comparisons as life returns to normal.

Make no mistake: BUD shares have been hit hard by the novel coronavirus. The stock is still below the levels it occupied before the pandemic selloff began in February 2020. Indeed, it lost 15% last year and is off almost 11% in 2021.

But an attractive valuation and improved top-line prospects have analysts turning incrementally more positive on the name.

“BUD shares have been hit hard by the coronavirus, and results are not expected to completely recover until 2022,” writes Argus Research analyst Taylor Conrad, who rates the stock at Buy. “Over the long term, we expect Anheuser-Busch InBev to benefit from under-penetration in emerging markets, increased demand for premium beers, and expanding sales of ‘near-beer’ and nonalcoholic beverages.”

Taking a closer look at the valuation, analysts expect BUD to deliver average annual earnings growth of 17% over the next three to five years, according to data from S&P Global Market Intelligence. And yet the stock trades at less than 18 times projected earnings for 2022.

Although concerns remain about foreign currency headwinds and softness in certain international markets, analysts’ consensus recommendation stands at Buy.

4 of 11

Coca-Cola

Various Coca-Cola and Coke Zero cans sitting in iceVarious Coca-Cola and Coke Zero cans sitting in ice
  • Market value: $219.8 billion
  • Dividend yield: 3.3%
  • Analysts’ opinion: 10 Strong Buy, 7 Buy, 7 Hold, 0 Sell, 0 Strong Sell

The bad news: The pandemic put a big hurt on sales of Coca-Cola (KO, $50.88) products at restaurants, bars, cinemas, live sports and other events. The good news: KO will come up against easy comparisons as the world emerges from the COVID-19 era, essentially setting it up for a spring-loaded recovery in revenue.

Although some analysts caution that the overhang of ongoing tax litigation could weigh on investor sentiment regarding KO shares, certain macroeconomic and fundamental factors point to KO as one of the better recovery stocks for investors who love big, sturdy blue chips.

At CFRA Research, for example, Garrett Nelson rates Coca-Cola at Hold on tax litigation unknowns. But he says the “plummeting U.S. dollar should boost KO’s operating income and on-premise sales should improve as restaurants and other venues gradually re-open.”

Elsewhere on the Street, Bernstein Research’s Callum Elliott in January initiated coverage of this bluest of blue chips, telling clients the company is undergoing an “underappreciated cultural overhaul” and “multiyear turnaround story” set to drive a prolonged period of sales, margin and earnings expansion.

Of the 24 analysts covering Coca-Cola tracked by S&P Global Market Intelligence, 10 rate it at Strong Buy, seven say Buy and seven call it a Hold. That gives the Dow Jones stock a consensus recommendation of Buy.

The Street also expects the beverages giant to generate average annual earnings growth of 5.1% over the next three to five years.

5 of 11

Southwest Airlines

Southwest Airlines planeSouthwest Airlines plane
  • Market value: $34.5 billion
  • Dividend yield: N/A
  • Analysts’ opinion: 11 Strong Buy, 4 Buy, 4 Hold, 2 Sell, 0 Strong Sell

The market is already pricing in big things from Southwest Airlines (LUV, $58.47) as it flies toward sunnier skies ahead.

Shares in the air carrier are up 25% for the year-to-date, vs. a gain of less than 5% for the S&P 500. Heck, in the past six months LUV has gained 50% against an 18% rise in the broader market.

Fortunately, analysts think shares can keep climbing, even though a full recovery in air traffic to pre-pandemic levels likely remains years away.

Although the pandemic continued to depress air travel demand during the fourth quarter of 2020, Southwest Airlines displayed impressive resilience, says CFRA Research analyst Colin Scarola.

“Despite the quarter’s major resurgence of COVID-19, which led to new travel restrictions and business closures, LUV’s revenue grew 12% vs. the third quarter,” writes Scarola in a client note. “Such strong sequential revenue growth in this harsh environment suggests that there is significant pent up air travel demand. We think this demand will start to be unleashed this Spring as vaccines become widely distributed, allowing LUV to soundly beat revenue and earnings per share estimates for 2021.”

The analyst notes that even in the face of unprecedented demand weakness, Southwest maintained a strong balance sheet with negative net debt throughout the pandemic.

“Strong customer loyalty and efficient operations will lead LUV to be the first major airline to recover profitability,” Scarola adds.

Although two analysts remain skeptical of LUV stock at current levels, slapping Sell calls on the name, the consensus view works out to a solid Buy, according to S&P Global Market Intelligence.

6 of 11

Archer Daniels Midland

A person puts their hands through fresh grainsA person puts their hands through fresh grains
  • Market value: $32.7 billion
  • Dividend yield: 2.5%
  • Analysts’ opinion: 7 Strong Buy, 3 Buy, 3 Hold, 1 Sell, 0 Strong Sell

Although increased demand for comfort foods, snacks, staples and other eat-at-home packaged foods have helped Archer Daniels Midland (ADM, $58.59) navigate the pandemic well, the global food ingredients giant has no shortage of catalysts coming amid a return to normalcy.

The shuttering of restaurants, bars, live sports and entertainment and other public venues hurt sales of starches, sweeteners and other products in its food services businesses. At the same time, shelter-in-place restrictions in Europe took a toll on its overseas biodiesel business, while a decline in gas demand in the U.S. forced a temporary shutdown in ethanol productions.

Those segments now have the opportunity to bounce back. Add in expectations for future growth in other divisions, and several analysts have ADM among their best recovery stocks.

Argus Research analyst Deborah Ciervo rates the stock at Buy “based on the company’s strong performance and expectations for further growth in the Oilseeds business and improvement in the Origination and Nutrition divisions.”

Those segments have benefited from global demand for soybean meal despite the drop in exports to China, says Ciervo, adding that she continues to have a “favorable view of the company’s long-term strategy.”

With seven Strong Buy recommendations, three Buy calls, three Holds and one Sell, analysts’ consensus recommendation on ADM comes to Buy, according to S&P Global Market Intelligence.

7 of 11

Walt Disney

Mickey Mouse wavesMickey Mouse waves
  • Market value: $358.3 billion
  • Dividend yield: N/A
  • Analysts’ opinion: 15 Strong Buy, 6 Buy, 5 Hold, 1 Sell, 0 Strong Sell

The coronavirus took a huge bite out of some of Walt Disney (DIS, $196.75) most important divisions: specifically, its theme parks and studios. But after encouraging quarterly results, analysts say business is set to bounce back in a big way.

While it’s certainly good news that Disneyland and other California amusement parks will be allowed to reopen with limited capacity and other restrictions on April 1, that’s nothing compared to what DIS has on its hands in the streaming media wars.

Disney+ is a smashing success. The streaming platform, which launched in November 2019, has already amassed almost 100 million subscribers – a staggering rate of growth. Consider that Disney+ now has about half as many subscribers as Netflix (NFLX) – but Netflix had a roughly 12-year head start.

“While the near-term visibility remains somewhat limited by the COVID-19 surge, DIS is one of the likely prime beneficiaries of further reopening of the global economy, with improved near-term prospects of vaccine development,” says CFRA Research’s Tuna Amobi, who rates the stock at Buy.

In the meantime, CFRA likes that DIS is “systematically pivoting to a direct-to-consumer-centric strategy on COVID-19 demand tailwinds for its streaming offerings (Disney+, ESPN+, Hulu).”

The Street, on average, is solidly bullish on Disney, with a consensus recommendation of Buy.

8 of 11

Alaska Air Group

An Alaska Air planeAn Alaska Air plane
  • Market value: $8.3 billion
  • Dividend yield: N/A
  • Analysts’ opinion: 9 Strong Buy, 2 Buy, 3 Hold, 0 Sell, 0 Strong Sell

Alaska Air Group (ALK, $65.69) is another airline set to benefit disproportionately from a recovery in the sector, analysts say. Indeed, CRFA’s Scarola says it has some of the same attributes supporting his Buy call on Southwest.

“We believe ALK’s combination of a conservative balance sheet and its historically high cash generation per plane will make it among the first U.S. airlines to recover profitability this year,” writes Scarola, who has a Buy recommendation on the stock. “ALK also has modest equipment purchase commitments for 2021-2022, in our view, with 2022 commitments equating to only 32% of 2019 operating cash flow.”

At Stifel, analyst Joseph DeNardi (Buy) believes the airline’s geographic service area lowers the risk that it emerges from the pandemic facing significantly lower structural demand. And even if the pandemic and its aftermath trigger a painful reckoning in the industry leading to consolidation?

“Alaska would be a highly valued asset,” DeNardi writes.

Long-term investors traditionally don’t bet on stocks because they believe them to be attractive acquisition targets, but there’s nothing wrong with having an extra card to play.

Either way, the bulk of the Street cottons to the bullish investment thesis and considers ALK among the best recovery stocks out there, with nine Strong Buy calls and two Buy calls against three Hold recommendations. All in all, those views add up to a consensus rating of Buy, according to S&P Global Market Intelligence.

9 of 11

Gaming and Leisure Properties

The Tropicana Atlantic City casinoThe Tropicana Atlantic City casino
  • Market value: $9.7 billion
  • Dividend yield: 6.2%
  • Analysts’ opinion: 10 Strong Buy, 3 Buy, 2 Hold, 0 Sell, 0 Strong Sell

Gaming and Leisure Properties (GLPI, $42.36) is an analyst favorite in the casino real estate investment trust (REIT) sector thanks to both a snazzy dividend yield and attractive growth prospects coming out of the pandemic.

The company, whose properties include the Hollywood Casino Baton Rouge and Argosy Riverside in Missouri, collected 100% of its rents in 2020, notes UBS Global Research analyst Robin Farley, who is one of just two analysts with a Hold-equivalent rating on GLPI.

More bullishly, Stifel’s Simon Yarmak calls Gaming and Leisure Properties a Buy, thanks to “an attractive portfolio of regional assets, which has returned to strong operating performance.”

Perhaps most optimistic of all is Raymond James analyst RJ Milligan, whose Strong Buy call is based partly on the stock “trading at an unwarranted discount.”

“With zero exposure to the Las Vegas Strip, GLPI’s assets have seen a stronger recovery than the other gaming REITs,” says Milligan in a client note. “In addition to strong asset-level recovery, GLPI’s largest tenant – Penn National Gaming (PENN) – has significantly improved its liquidity position and has cheap/attractive access to the capital markets (it can pay the rent until we get to the other side of COVID).”

With 100% rent collection in 2020, it’s fair to say GLPI has proven itself durable, bulls say. They’re excited to see what happens once a fuller economic reopening takes hold and customers return en masse.

10 of 11

Wyndham Hotels & Resorts

A Ramada InnA Ramada Inn
  • Market value: $6.4 billion
  • Dividend yield: 0.9%
  • Analysts’ opinion: 8 Strong Buy, 2 Buy, 1 Hold, 0 Sell, 0 Strong Sell

Not all hotels are the same. Wyndham Hotels & Resorts (WH, $68.88) – whose brands include La Quinta, Ramada, Super 8 and Travelodge – stands to enjoy a disproportionate lift from the return of mass-market business and leisure travel.

As a result of those characteristics, some Wall Street analysts like WH as a potential comeback play in the lodging industry.

Although revenue per available room (RevPAR), a key hotel industry metric, continued to decline in the most recent quarter, Stifel analyst Simon Yarmak notes that the hotel chain’s “results are likely to be among the best in the peer set, as the company benefited from its higher leisure exposure (70%) and drive to destinations (87% are drive-to travelers).”

Yarmak, who rates shares at Buy, adds that the company’s RevPAR continues to strengthen, and that its occupancy rate “speaks to the company’s relative advantage in returning to prior levels quicker than some of its peers.”

In another point for the bulls, the company’s capital-light business model allows it to generate ample free cash flow, analysts note.

Of the 11 analysts covering the stock tracked by S&P Global Market Intelligence, eight rate it at Strong Buy, two say Buy and one has it at Hold. Taken together, that equates to a consensus recommendation of Strong Buy, and the second-best rating of these 11 recovery stocks.

11 of 11

VICI Properties

Caesars Palace in Las VegasCaesars Palace in Las Vegas
  • Market value: $15.3 billion
  • Dividend yield: 4.6%
  • Analysts’ opinion: 14 Strong Buy, 4 Buy, 1 Hold, 0 Sell, 0 Strong Sell

Perhaps no Las Vegas property owner is better prepared for a return to normal in Sin City than VICI Properties (VICI, $28.56).

The casino REIT has been on an acquisition tear in the COVID-19 era, most recently scooping up the Venetian Resort Las Vegas from Las Vegas Sands (LVS) for $4 billion. The whopper of a deal has at least some analysts doing handstands.

“VICI continues to steamroll right through the pandemic with another transformational acquisition,” says Raymond James analyst RJ Milligan, who rates the stock at Strong Buy.

Other recent deals include a $250 million acquisition of three regional casino properties in December and last summer’s $1.8 billion purchase of the land and real estate assets associated with Harrah’s New Orleans, Harrah’s Laughlin and Harrah’s Atlantic City.

Once the Venetian deal closes, VICI will own the largest single hotel complex in the U.S., the company says, with more than 7,000 rooms and the largest private sector convention and trade center in America.

Analysts’ consensus recommendation comes to Strong Buy, according to S&P Global Market Intelligence. The generous dividend yield of 4.6% also makes VICI one of the best recovery stocks from an income perspective.

Source: kiplinger.com

How to Invest in Consumer Staples Stocks – Tips for Getting Started

Although there is no such thing as an investment without risk, many investors look for companies that are known for stable growth and strong dividends — the type of stock that will make it through a recession with minimal losses and continue to grow on the other side.

Although these may be difficult to come by in cyclical sectors like technology and real estate, there are plenty of gems that fit the bill in the consumer staples sector.

But what are consumer staples stocks? And how do you go about being a successful investor in the sector?

What Are Consumer Staples Stocks?

Consumer staples stocks represent companies that manufacture and sell products sold under household name brands.

For example, Procter & Gamble is a consumer staples company that manufactures and sells health and hygiene products like Crest toothpaste and Luvs baby diapers. Even in times of tough economic conditions, Procter & Gamble and its investors will benefit from the fact that the average consumer isn’t willing to go without brushing their teeth and won’t let their child fester in a soiled diaper. Because it’s a consumer staples company, Procter & Gamble has an economic shield.

This shield Procter & Gamble has was on full display in 2020, when the COVID-19 pandemic rattled global markets. Although the stock dipped in February and March, the declines experienced were minimal compared to overall markets. Moreover, the stock recovered quickly, ending the year 2020 with gains of about 13.5% during a year when the Dow Jones Industrial Average generated a return of 9.7%.

Other consumer staples stocks are cyclical, meaning that they react to the cycles of the economy. For example, Coca-Cola is a consumer staples stock that produces and sells nonalcoholic beverages. However, the company saw tremendous declines as a result of the COVID-19 pandemic as consumers were unable to eat out at restaurants — a significant portion of the soft drink business — and opted for lower-cost drinks at home such as water.

Pro tip: You can earn a free share of stock (up to $200 value) when you open a new trading account from Robinhood. With Robinhood, you can customize your portfolio with stocks and ETFs, plus you can invest in fractional shares.

Breaking a Common Misconception

There is a common misconception that consumer staples provide protection from economic declines. However, that’s not always the case. Consumer staples are made up of both consumer necessities and consumer discretionaries.

Although consumer necessities are noncyclical — think toothpaste, soap, and cleaning supplies — by contrast, consumer discretionaries like soft drinks and luxury clothing are highly cyclical and will generally experience heavy declines during tough economic conditions.

Subcategories of the Consumer Staples Sector

As with any other sector of the stock market, the consumer staples sector is made up of multiple smaller subcategories. These subcategories include:

1. Retail

In order to access the products they need, consumers shop at a wide range of retailers. These retailers are considered consumer staples because they are the go-to outlets for the products that consumers use in their day-to-day lives.

Some of the most popular retailers in the consumer staples category include:

  • Walmart (WMT). Walmart is one of the largest retailers in the world. While the company offers plenty of consumer discretionary products, it is also the home of necessary consumer staples products like food, cleaning supplies, and toilet paper.
  • Costco Wholesale (COST). Costco is a wholesale club that provides discounts to consumers for buying food, toiletries, and other consumer goods in bulk. Like Walmart, the company offers a wide range of both necessary consumer staples and consumer discretionary products.
  • Amazon.com (AMZN). Amazon.com was transformed into a consumer staples stock during the COVID-19 pandemic. Like others on this list, the company offers plenty of consumer discretionary products. However, when the COVID-19 pandemic caused stay-at-home orders, Amazon.com became an indispensable source of necessities for high-risk consumers that didn’t feel safe shopping in brick-and-mortar stores.

2. Food and Drink

Could you imagine life without something to eat or drink? It wouldn’t last very long. The companies that offer food and drink products are often strong performers in the consumer staples sector.

Some of the most popular include:

  • General Mills (GIS). General Mills is most well known for its cereal brands, but the company is far from a one-trick pony. The company manufactures and distributes products under many popular brands, including Gold Medal Flour, Betty Crocker, and Yoplait.
  • Coca-Cola (KO). Coca-Cola is one of the most well-known brands in the world. Known for its Coca-Cola brand soda, the company also has a long line of diversified products including Fanta and Sprite. However, the company’s core focus on the non-alcoholic beverages market didn’t bode well during COVID-19.
  • PepsiCo (PEP). PepsiCo is another company known for its cola brand, Pepsi. However, the company operates in areas outside of non-alcoholic beverages. In fact, its food brands like Fritos, Lays, and Quaker helped the company maintain shareholder value, even in the face of the COVID-19 pandemic.

3. Beauty and Hygiene

While you won’t die if you don’t put on your makeup, many consumers view beauty products as a necessity. Furthermore, hygiene products like toothpaste, shampoo, and body wash will be in high demand, regardless of the state of the economy.

Some of the most popular stocks in the beauty and hygiene subcategory of the consumer staples sector include:

  • Procter & Gamble (PG). Procter & Gamble is the company behind Crest toothpaste, Charmin toilet paper, and Tide laundry detergent. The company also offers a wide range of consumer staples products in the beauty category, such as Covergirl and Olay.
  • Estee Lauder (EL). Estee Lauder is the company behind popular beauty brands such as Aveda, Aramis, and Clinique. Unlike Procter & Gamble, the company’s core focus is on beauty and hygiene products.

4. Adult Consumer Staples

Although most parents discourage their kids from picking up their first cigarette or alcoholic beverage, these products have become consumer staples in their own respect. There is a large percentage of the United States adult population that uses tobacco or alcohol regularly.

Some of the top stocks in this category include:

  • Altria Group (MO). Altria Group is the largest tobacco company in the United States. The company owns Phillip Morris, the maker of Marlboro cigarettes, and U.S. Smokeless Tobacco.
  • Ambev (ABEV). Ambev is an alcoholic beverage company. It’s the company behind brands like Skol, Brahma, and Presidente.

What to Look for in a Consumer Staples Stock

When investing in any category, it’s important to keep in mind that stocks are not all created equal. As in any other sector, some consumer staples stocks will outperform others. As such, it’s important to do your research and make sure you’re making the right moves before investing in the sector.

Here’s what you should be looking for as you do your research:

1. A Strong History of Consistent Sales Growth

The best consumer staples stocks come with a proven history of sales growth. After all, if consumers need the products offered by the company, the company should see growth as the population of consumers grows.

To determine whether the stock you’re interested in is generating strong sales growth, look at the past four years of earnings reports issued by the company. This will provide you with a full view of sales growth. If sales declined in any year over the past four years, there’s a strong probability that the company is experiencing headwinds, and the stock may fall in the future.

On the other hand, if sales have consistently grown on a year-over-year basis over the past four years, there’s a strong probability that sales will continue in the right direction, suggesting that an investment in the stock will be a winning move.

2. A High Dividend Yield

Although the consumer staples sector isn’t known for the highest dividends on the stock market, many of the most successful companies in the space do pay dividends, and like any other sector, you will likely find a diamond or two in the rough with a bit of research.

The vast majority of stocks in the consumer staples category provide investors with a dividend yield of under 2%, but there are blue-chip companies like Kraft Heinz and General Mills that offer above-par dividend yields.

The reason to look for high dividend yields is simple. As an investor, you want to generate as much growth as humanly possible. High dividends assist in generating high levels of total growth across your investment portfolio.

3. A Proven Ability to Thrive in Tough Economic Conditions

One of the biggest benefits to investing in consumer staples is the fact that consumers will need these products even during tough economic conditions, ultimately dampening the blow the stock takes when economic conditions fall into question.

By their nature, consumer staples stocks should do relatively well during tough economic times. On the other hand, it’s the stock market, and nothing is perfectly predictable on Wall Street. Although investing isn’t the same as gambling, it is an attempt at predicting the future. Because nobody can see into the future, things won’t always go as planned.

That being said, it’s important to look into the history of any company you’re considering, particularly its track record during tough economic times.

The most recent market crash caused by COVID-19 in February and March 2020 will provide a strong indication of what the stock is likely to do when the market takes a dive, which will happen from time to time. It would also be wise to look into the company’s performance from September 2008 through June 2009 as the Great Recession pulled the market down.

You’re likely to see declines during these times, but if the company saw less dramatic losses than the overall market during these market crashes and came out the other side more or less unscathed, its history provides a strong indication of future strength.

Pro tip: If you’re going to add new investments to your portfolio, make sure you choose the best possible companies. Stock screeners like Stock Rover can help you narrow down the choices to companies that meet your requirements. Learn more about our favorite stock screeners.

4. A Reasonable Valuation

Investing is all about making money. The goal on Wall Street is to buy stocks at low prices, giving you the opportunity to profit through the sale of the stock when prices rise. So, it’s important to make sure you don’t overpay when you enter into a position.

Successful investors use a suite of valuation metrics to determine whether the price of a stock represents an undervaluation, overvaluation, or fair market value. Some of the most common valuation metrics include:

  • Price-to-Earnings Ratio (P/E Ratio). The P/E ratio compares the current price of a stock to the annual earnings per share generated by the company. If a company generated $1 per share in earnings over the past year and currently trades at a price of $10 per share, the P/E ratio of that stock is 10. Investors also look to the forward P/E ratio, which compares analyst expectations of earnings over the next year to the current share price, or the mixed P/E ratio, which compares the last two quarters of earnings per share plus the next two quarters of analyst expectations for earnings per share to the current share price. The average P/E ratio in the consumer staples sector was 28.27 as of December 31, 2020.
  • Price-to-Book Ratio (P/B Ratio). The price-to-book ratio compares the current price of shares to the book value of all assets on the company’s balance sheet. For example, if the company has $100 million in assets and a market capitalization of $200 million, its P/B ratio is 2. The average P/B ratio in the consumer staples sector was 6.16 as of December 31, 2020.
  • Price-to-Sales Ratio (P/S Ratio). Finally, the price-to-sales ratio compares the current price of the stock to the annual revenue generated by the company. As with the P/E ratio, the P/S ratio can be trailing (current price compared to the past year of sales), mixed (current share price compared to the past two quarters of sales and expectations for the next two quarters of sales), or forward-looking (price compared to analyst expectations of sales over the next year). The average P/S ratio in the consumer staples sector was 1.35 as of August 31, 2020.

To determine whether a stock is undervalued, overvalued, or trading with a fair valuation, investors compare the ratios above for the stock they are interested in to the average ratios for the sector. The higher these ratios are, the more expensive the stock is. So, investors look for lower P/E, P/B, and P/S ratios when looking for opportunities in the stock market.


Consider Investing in Consumer Staples-Focused ETFs

If you’re new to investing or would rather take a relatively hands-off approach while exposing your investment portfolio to quality consumer staples stocks, consumer staples-focused exchange-traded funds (ETFs) are a compelling option.

These ETFs are bucket investments that invest their assets in consumer staples companies chosen for specific qualities. For example, here’s a quick rundown of the top three consumer staples ETFs on the market:

  • Consumer Staples Select Sector SPDR Fund (XLP). The Consumer Staples Select Sector SPDR Fund is one of the most popular consumer staples-focused ETFs on the market today. The fund is made up of a wide range of noncyclical consumer staples stocks designed to outperform overall markets should the market take a turn for the worse, while providing compelling returns in bull markets.
  • Vanguard Consumer Staples Index Fund ETF (VDC). The Vanguard Consumer Staples Index Fund ETF is designed to provide investors exposure to the U.S. consumer staples market.
  • iShares Global Consumer Staples ETF (KXI). The iShares Global Consumer Staples ETF is designed to provide exposure to the global consumer staples sector, not just that in the U.S. The ETF is relatively equally weighted between U.S. and global consumer staples stocks.

By investing in consumer staples-focused ETFs, you’ll gain exposure to the sector without having to make the tough decisions surrounding picking stocks one by one.

Moreover, ETFs often lead to reductions in the overall cost of investing, as a single transaction fee covers exposure to a wide range of diversified stocks.

When investing in ETFs, pay close attention to the expense ratio. The higher the expense ratio on an ETF, the more you pay to own it. By keeping your fees low, you can increase your returns by tens or even hundreds of thousands of dollars over the life of your long-term investments.


Final Word

The consumer staples sector is one where plenty of opportunities can be found. According to Nasdaq, these stocks make up a sizable portion of iconic investor Warren Buffett’s portfolio, and for good reason. They provide opportunities for both growth and stability among some of the most well-known companies in the world.

Nonetheless, as with any other investment, before risking your hard-earned dollars on any consumer staples stock, it’s important to do your research. After all, educated investing is generally the key to successful investing. By performing your due diligence, you have the ability to pick the stocks that will grow during positive economic times and provide stability during downturns.

All in all, with a little research, consumer staples stocks can be big winners in your portfolio.

Source: moneycrashers.com

What is Fundamental Analysis of Stocks?

When you’re working with investments and trying to make sound decisions, it’s best to use hard data and publicly available information instead of relying on subjective feelings like your instincts. Your emotions may easily be swayed, but it’s hard to argue with numbers and facts. 

Fundamental analysis, or FA, is one method that can help inform your choices regarding whether or not a company makes a good investment option. FA isn’t just for finance experts; it can help you make independent decisions about your own investment portfolio. Below, we’ll explore the fundamental analysis basics, how to practice this method, and explore other investment tips.

What is Fundamental Analysis?

Fundamental analysis is a way to determine a security’s fair market value by examining different financial and economic factors. The state of the economy, industry conditions, or the effectiveness of a company’s leaders can all influence fundamental analysis. 

The main purpose of FA is to decide whether or not a security’s current pricing is overvalued or undervalued. Ideally, you’ll be able to find a company whose value is greater than or will be greater than its current market value.

Understanding Fundamental Analysis

Fundamental stock analysis helps potential investors figure out whether a security’s value makes sense within the market at large. FA can be conducted on a micro or macro scale in order to choose securities.

Analysts typically start from a wider perspective, such as current economic conditions, and then hone in on an individual company’s performance. Variables like interest rates, the state of the economy, and the bond issuer’s credit ratings may all come into play. Basically, any public data can be used to evaluate a security’s value – but we’ll dive specifically into what kinds of data and information fundamental analysis evaluate below.

Quantitative Fundamental Analysis

When you start to investigate a company to determine its potential for growth and overall health, it’s essential to get a good read on the underpinnings of the business. Of particular importance is understanding the financial statements of a company. This is what’s called quantitative fundamental analysis since you’re focused on the hard numbers a company provides.

A business’s income statement, balance sheet, and statement of cash flows are three large indicators that determine the overall health and success of a business. 

  • Income statement: The income statement shows a company’s profit after expenses are taken out. It also reveals a company’s performance within a specific time period.
  • Balance sheet: A balance sheet reveals business assets compared to its liability and shareholders’ equity. A balance sheet follows this simple equation: Assets = Liabilities + Shareholders’ Equity. Assets can be cash, buildings, inventory, or equipment.
  • Statement of cash flows: The statement of cash flows shows where money comes in, goes out, and for what purpose. In most cases, a statement of cash flows focuses on the activities below:
    • Cash from investing (CFI): Cash used for investing and from the sale of other businesses or assets.
    • Operating cash flow (OCF): Cash made from business operations.
    • Cash from financing (CFF): Cash received from borrowed funds.

Qualitative Fundamental Analysis

Numbers don’t always give you the full picture. That’s where qualitative fundamental analysis comes in to help. For example, part of your qualitative investigation might come from a company’s annual report. In an annual report, a company’s leaders will explain the company’s performance and mention a strategy for the future. 

Qualitative information might also come from the company’s brand name recognition, patents, the performance of key executives and leaders, and proprietary tech. Here are some basic fundamentals you’ll want to pay attention to conducting a qualitative analysis:

  • Business model: Although this seems straightforward, it’s important to look at how the company makes its money (aka the business model). Does it sell a main product or mostly coast by on fees and franchising? 
  • Competitive advantage: A company can do well for a while based on its own products and services… until another company comes along and does it better. That’s why it’s incredibly important for companies to show a competitive advantage and be able to maintain it over the long term. Need an example? Think about the staying power of large corporations like Coca Cola or Johnson & Johnson.
  • Leadership: There are a few experts that believe management is the most important part of the decision to invest in a company. And if you think about it, it makes sense. Even a company with a million-dollar idea can tank under the influence of incompetent leadership. With that said, it’s hard for small-time investors to go in and meet managers or vet them in an interview. Instead, you can look through the company’s main website to read about a company’s top executives. If you want to go a step further, you can even investigate board members and execs’ performance at their past companies.
  • Corporate governance: Corporate governance refers to the policies that guide the relations between management, directors, and shareholders. You’ll find references to these policies in the company charter. The rules and bylaws governing how a company does business are important to know. Why? Because it’s important to put your money into a company that’s ethical and fair. Make sure to note any sections referring to management and shareholder interests. As a potential shareholder, you’ll want to see transparency and fairness as guiding principles.

Qualitative information is more abstract, but it’s not any better or worse than quantitative information. In fact, qualitative indicators provide analysts with a way to put the numbers in context and can provide insight into the business’s future. Most fundamental analysts use a combination of both qualitative and quantitative data to arrive at their conclusions.

So, what does an analyst do with the information after they’ve conducted a fundamental analysis of a stock?

  • If an analyst finds that a stock’s value is more than the stock’s current price, they might publish a “buy” or “undervalued rating” for the stock. 
  • If an analyst finds that a stock’s value is lower than the current price, they might publish a “sell” or “underweight rating” for the stock.

Investors who follow analyst recommendations use them to buy stocks with good ratings since they deem them to have a higher chance of growing in value over time. 

Examples of Fundamental Analysis

There are different approaches analysts use for fundamental analysis but they can be placed into two main buckets: top-down analysis and bottom-up analysis. The first, top-down refers to an approach that takes in a larger perspective of the economy. That view gets narrower, from the economy, to the sector, to industry, and then whittled down to an individual company. 

Bottom-up analysis starts with a particular stock and then zooms out to consider all the other variables that influence its market price. 

The tools that a fundamental analyst uses depends on what asset is being traded. The tools that can be used in fundamental analysis can be found below.

Fundamental Analysis Tools

Fundamental analysts use a variety of tools to measure the value of a stock. Although an analyst might not use all of the ratios and calculations below, these represent common metrics you might find useful.

  • Return on equity: To get this metric, divide the company’s net income by the shareholders’ equity, this will give you the return on equity. Return on equity is also referred to as a company’s return on net worth. 
  • Dividend yield: This is a stock’s yearly dividends in comparison to the share price, expressed as a percentage. To get the dividend yield, you need to divide dividend payments per share in one year by the value of a share.
  • Dividend Payout Ratio: This ratio shows what was paid out to the shareholders in dividends compared to the company’s net income. It shows you a security’s retained earnings.
  • Price to Book Ratio (P/B): Also referred to as price to equity ratio, this ratio compares a stock’s book value to its market value. To get this ratio, you can divide the stock’s most current closing price by last quarter’s book value per share. The definition of book value is the value of an asset, as it appears in a company’s books. 
  • Price to Sales Ratio (P/S): The price-to-sales ratio tells what a company’s stock price is as compared to its revenue. It’s also referred to as the PSR, sales multiple, or revenue multiple.
  • Projected Earnings Growth (PEG): PEG is an estimate of what the one-year earnings growth rate of the stock will be.
  • Price to Earnings (P/E): This ratio compares the current sales price of a company’s stock to its per-share earnings.
  • Earnings Per Share (EPS): The number of shares or the earnings can’t tell you very much about a company isolated by itself, but if you put those numbers together, you get an EPS or Earnings Per Share. EPS gives you an idea of how much a company’s profit is assigned to each share of stock

How to Improve Your Understanding of Fundamental Analysis

Do you want to ensure that you have a concrete understanding of fundamental analysis? Consider giving yourself a homework project like the one below to practice your skills. 

  •  Follow two stocks for three months

Opt for one stock that you like and one that you don’t. Make sure you examine the fundamentals of each and try to make a choice about each stock according to the information you gather on those metrics. Take note of the progress of each stock pick and evaluate performance from the selection day up to the three-month mark. 

  •  Use a checklist

Now it’s time to get out the pencil and paper to compare hard numbers. Those ratios and other important numbers will comprise a checklist that you can use as your cheat sheet to evaluate a stock or security.

  •  Figure out your benchmarks

When you analyze stocks that you’re interested in tracking, use another stock in the same industry to act as a benchmark. What’s a benchmark? Benchmarks serve as a standard way for analysts to study the stock you’re evaluating. 

But remember, not all stock comparisons make sense – you’ll need to compare similar companies. Comparing Google with a heavy industry stock like Steel Dynamics Inc. won’t yield any useful information for you. Make sure you use ratios and comparisons among similar companies, industries, or sectors. For example, comparing JPMorgan Chase and Bank of America would potentially reveal usable information for you regarding each company’s health and value.

Pros and Cons of Fundamental Analysis

FA helps you better evaluate a stock within a broader context. Although this stock analysis method has many benefits, it also has a few drawbacks to consider as well. Below, we’ve laid out a few key pros and cons:

Pros of Fundamental Analysis

  • Easy to gather data: FA uses lots of publicly available data, which is fairly easy to acquire and analyze.
  • Provides more relevant context: Knowing you’re putting your money into a company with a healthy financial background is typically a good idea. 
  • Gives you peace-of-mind: Although a company that performs well and has strong business underpinnings doesn’t guarantee success, it can still help you make a sound investment decision for the long-term.

Cons of Fundamental Analysis

  • Time-consuming: Each company needs to be analyzed and studied independently. Depending on what data you’re gathering and what numbers you’re crunching, this can be a significant investment of your time and effort.
  • Unique datasets necessary: Because fundamental analysis involves public information, it’s fairly difficult to find unique datasets that have limited publication to gain an edge. 
  • Short term “blindness”: Short-term volatility can’t be predicted by past financial statements. 

Fundamental Analysis vs. Technical Analysis

When you start researching fundamental analysis, you’ll likely see another analysis method come up in your search results: technical analysis. Technical analysis is based on only a stock’s price or on its volume data. Instead of predicting the future, technical analysis, or TA, attempts to figure out price patterns.

Technical analysts use chart patterns, trends, price, and volume behavior to identify stocks with the greatest chance for growth in value. It doesn’t take into consideration the business’ health or the broader economy.

The main difference between fundamental and technical analysis is that fundamental analysts want to figure out the difference between a stock’s intrinsic value versus its current market price. Technical analysis is focused on price action, which points to a stock’s supply and demand pattern. While this isn’t always the case, FA is often used for long-term investments, and TA is typically used for short-term investments.

The debate over fundamental and technical analysis is ongoing. Fundamental analysis can be more helpful for figuring out long-term investments while technical analysis is better served for short-term trading and timing the market. You can use both to plan investments over the short term and long term.

Top Research Tools for Fundamental Analysis 

  • Finviz: Finviz allows you to screen stocks based on fundamental parameters you set. You can use the free version to access basic information or upgrade to the subscription model for more comprehensive access.
  • TD Ameritrade: TD Ameritrade is a very popular online brokerage with a huge section dedicated to stock research. You can use the site’s stock screener to filter stocks based on the fundamental benchmarks you choose. You’ll also be able to peruse other types of research like investing newsletters from major news sites.
  • Yahoo Finance: Yahoo is one of the oldest sites that shows investors stock data. You can use the search bar to explore different data sets. Explore a company’s historical data, financial reports, and statistics.

Fundamental Investing Tips

Every investor has their own strategy for investing in stocks. Fundamental analysis can be a great method to use, but it comes down to personal preference and your overall financial objectives. 

For example, if you’re interested in steady growth, then you’d probably look for a company that would make a sound long-term investment. So, you’d focus on the fundamentals to evaluate what company to invest in, based on how the business is expected to grow over a longer timeline. 

For value investors, the focus is on identifying a stock that makes a good buy. In turn, you’d use tools like dividend yields and low P/E ratios which show strong fundamentals within a market that undervalues it. 

When you’re first getting started with fundamental analysis, focus on the basics in the beginning. It’s very easy to get overwhelmed when faced with a veritable tidal wave of ratios, figures, and numbers. Instead, focus on simpler numbers like profits and earnings or revenue to determine whether or not a stock makes a good investment. These fundamentals don’t guarantee future earnings, but it’s a way to “hedge your bets”. Once you feel like you’ve built up experience with looking at basic numbers, you can jump into more complex figures to evaluate your stock options. 

It’s also a smart idea to think about what you’d gain from working with a professional advisor as opposed to working on your own. If you’re a brand new investor, you can use an online brokerage to make stock trading lower cost and user-friendly. 

Wrapping Up: Learning Fundamental Analysis, One Stock at a Time

Investors use a variety of methods to evaluate whether a stock makes a good investment choice – fundamental analysis is just one of them. Although you can practice this approach on your own, you might find more success working with a financial advisor that can help you tailor your investment strategy to better align with your money objectives.

Here are a few main takeaways to remember before putting money in an investment and to help you avoid beginner investing mistakes:

  • Know your objectives: Make sure that you understand your objectives before you get started. Do you want long-term growth? Are you looking for short-term gains? Are you focused on value? How long will you hold the stock? 
  • Decide on DIY or use an advisor: Do you feel confident in your knowledge and ability or will you rely on an expert (or robo-advisor) to help you plan your investment strategy?
  • Take care of other financial priorities: Do you have enough money to portion out for an investment, or are there financial priorities that demand your attention first? For example, you might want to pay off any high-interest credit card debt before funneling money into an investment since any returns might be negated by high interest rate fees from your debt.
  • Don’t forget all investments are a risk: All investments represent a risk, although it’s true that some investments are riskier than others. Even if you conduct an incredibly thorough fundamental analysis, it doesn’t provide you with any foolproof guarantees.

If you want to better comprehend how your investments will impact your overall finances, you may want to consider using Mint’s investment calculator. This online financial calculator can help you understand what gains you can expect over time. By entering in a few key numbers, you can generate your own investment goals, forecast growth, and look for potential opportunities to increase your portfolio’s success. 

Want to learn more about investing and investment strategy? Both SEC.gov and investor.gov are good resources to help boost your investment comprehension.

Learn more about security

Mint Google Play Mint iOS App Store

Source: mint.intuit.com