- Investors should always diversify their portfolio to reduce risk.
- With limited cash, one can try to bet on the bellwether stocks in each industry.
- Bank of America Merrill Lynch has published a list of its 11 favorite stocks for next year — one S&P 500 stock from each of the 11 Global Industry Classification Standard sectors.
- The firm’s 2018 list has generated a 3.2% average return rate, outperforming the benchmark S&P 500.
Investing is all about avoiding putting all your eggs in one basket.
Usually, the more diversified your portfolio is, the less risk you will bear. However, unless you are a big fund manager, you probably won’t buy more than a dozen stocks at a time. So, finding out the bellwether stocks in each industry is a good bet.
Bank of America Merrill Lynch is here to help. At the end of each year, BAML publishes a list of its 11 favorite stocks for next year — one in each of the 11 Global Industry Classification Standard sectors.
To be included in the list, a company must have a “buy” rating at the firm, and have exceptional fundamentals.
BAML says the list has proven to outperform the benchmark. Last year’s list has generated a 3.2% average return rate since it was published — versus the S&P 500’s 1.6% return, the bank says.
Below are the 11 stocks that BAML says have the biggest growth potential in their sector next year:
Sector: Communication Services
BAML comments: “One of highest quality S&P 500 stocks. Strong free cash flow, medium equity duration, low leverage. Big catalysts in 2019 (Disney Streaming Services, etc.) Underweight by large-cap active funds.”
Sector: Consumer Discretionary
BAML comments: “Strong free cash flow, inexpensive valuations (6x fwd. P/E), underweight by large-cap active funds Positive betas to both real and nominal rates. Both near-term and longer-term potential catalysts in the pipeline (trade war resolution, autonomous driving, etc.)”
Molson Coors Brewing
Sector: Consumer Staples
BAML comments: “High quality, inex pensive (13x fwd. P/E), attractive FCF yield, above-market dividend yield Historically does well in periods of rising volatility. Underweight by large-cap active funds.”