Big tech with strong fundamentals

Much of the pain this year has come from the technology sector: The tech-centric Nasdaq is down almost 11% in 2022, while the blue-chip heavy Dow is off just 3.8%.

But Farr reminds investors that not all tech stocks are created equal, with some carrying greater risks than others.

“During a rising rate environment, the higher multiple growth stocks and those more speculative stocks that ... trade on (their) price to sales (ratio) because there are no earnings, those stocks suffer.”

On the other hand, large-cap tech stocks with rock-solid balance sheets offer investors a chance to go for growth in a relatively risk-averse fashion. One such stock that Farr singled out is Google parent Alphabet.

“Alphabet is executing very well and it’s one I’ve owned for a very long time.”

Alphabet delivered a solid report this earnings season. In Q4, revenue grew 32% year over year to US$75.3 billion. Meanwhile, earnings per share surged 38%.

Join Masterworks to invest in works by Banksy, Picasso, Kaws, and more. Use our special link to skip the waitlist and join an exclusive community of art investors.

Skip waitlist

Consumer staples

Businesses that sell the basics like food and household products aren’t exactly sexy, but they can provide a steady way to make gains no matter what the economy is doing.

“I always like the consumer staples as a defensive group,” Farr said. “I love my Pepsi-Colas of the world, they tend to do well.”

With massive brands like Pepsi-Cola, Mountain Dew, Lay’s, and Quaker in its portfolio, PepsiCo’s products continue to be on millions of shopping lists around the world.

In the latest quarter, PepsiCo’s revenue grew 11.6% to US$20.2 billion, thanks to a double-digit increase in beverage volume.

But it’s PepsiCo’s dividend history that gives us the best insight into the business model’s durability: The company has raised its cash dividend every single year for the past 49 years.

If you don’t want to pick individual stocks, low-cost ETFs that invest in a broad range of consumer staples companies are smart options.

Names like the Consumer Staples Select Sector SPDR Fund (XLP) and the Vanguard Consumer Staples ETF (VDC) should provide a good starting point for further research.

Financials

Farr likes financial stocks as well. And it’s not hard to see why.

Tighter monetary policy is likely coming. With inflation running hot, the Fed is expected to raise interest rates multiple times this year.

Many businesses fear rising interest rates. But for certain financials, like banks, higher rates are a good thing.

Banks lend money out at higher rates than they borrow at, pocketing the difference. As interest rates increase, this earnings spread widens.

Banking giants are also well-capitalized right now and have been busy returning money to shareholders.

Last year, Bank of America boosted its quarterly payout by 17% to US$.021 per share. Morgan Stanley doubled its quarterly dividend to 70 cents per share. And JPMorgan increased its quarterly rate by 11% to US$1 per share.

Investors can also get exposure to financial stocks through ETFs like the Financial Select Sector SPDR Fund (XLF) and the Vanguard Financials ETF (VFH).

You're 5 minutes away from the best mortgage

Searching for your perfect mortgage shouldn’t be hard.

Homewise is an online brokerage that will negotiate on your behalf with more than 30 big banks and other lenders, completely free, and it only takes five minutes to apply.

If you're in the market for a new mortgage, or if you're looking to refinance before interest rates rise again, go to Homewise now and answer a few simple questions to get started.

About the Author

Jing Pan

Jing Pan

Investment Reporter

Jing is an investment reporter for MoneyWise. Prior to joining the team, Jing was a research analyst and editor at one of the leading financial publishing companies in North America. Jing has covered numerous aspects of the financial markets, from blue chip dividend stocks to small cap tech stocks to precious metals and currency. An avid advocate of investing for passive income, he wrote a monthly dividend stock newsletter for the better half of the past decade. In his spare time, Jing plays basketball, the violin and the ukulele.

What to Read Next

Disclaimer

The content provided on MoneyWise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.