How to invest in some of the best-known US stocks

June 9, 2022

0 2 minutes read

When it comes to handling this see-saw effect, as an investor, there are two main approaches to take if you want to stay invested. You can opt for a passive investment, that for instance, tracks an index, or you can actively scour the market for stocks that you think have the potential to substantially outperform anything a sure and steady passive investment could do.

Both active and passive styles have a place in any portfolio. Passive investing can be more popular during periods of significant volatility, because it offers some level of comfort, but the fact is, it’s never going to shoot the lights out. This is where those who favour an active approach say active investing comes into its own – enabling you to spot and invest in opportunities that can significantly outperform a passive approach.

Many of the stocks that have been hit hardest are those whose profits are most sensitive to changes in economic demand. The flipside of this ‘sensitivity’ is that stocks like these can just as quickly rebound when conditions or good old investor sentiment switches direction.

Legendary investor Warren Buffett has made a career out of spotting such opportunities. And his investment company Berkshire Hathaway is chock full of them. His strategy, tried and tested since 1964, is to invest in stocks that others aren’t buying, specifically in companies whose intrinsic value is not reflected in their share price.

This is not a million miles away from the strategy Dennis Debusschere, founder of 22V Research, an independent investment intelligence firm based in New York, has used to identify 31 stocks that have averaged a better return during bear-market rallies than any others. He calls them stocks with “high earnings turbulence”.

Among them are coffee shop giant Starbucks (SBUX), eBay (EBAY), American Airlines Group (AAL), hard disk drive maker Western Digital (WDC) and PNC Financial Services Group (PNC). Of course, past performance is no guarantee of future success, but the list does show how actively choosing individual stocks to add to your portfolio can be profitable, if you get your timing right.

The 22V list includes companies in sectors as diverse as consumer discretionary, semiconductors, industrials and financials. It doesn’t ignore the fact that people cut spending on goods and services they deem to be non-essential when they tighten their belts. Nor does it exclude the fact that banks are less likely to lend to either people or businesses when economic activity slows. What it does though is show the power of stock picking.

A note of caution – a fair slug of the remaining 26 stocks on the list are in the oil sector. Exxon Mobil (XOM), EOG Resources (EOG), Pioneer Natural Resources (PXD), Occidental Petroleum (OXY) and Marathon Petroleum (MPC) may have already peaked – soaring as they have in tandem with the raging price of oil. It’s important to acknowledge that these stocks could just as easily slump if waning demand for oil sees the oil price slide.

The rest of the list is made up of Bank of America (BAC), Wells Fargo (WFC), Conoco Phillips (COP), Raytheon Technologies (RTX), Morgan Stanley (MS), Goldman Sachs Group (GS), General Electric (GE), American International Group (AIG), Devon Energy (DVN), Phillips 66 (PSX), Sysco (SYY), Prudential Financial (PRU), Public Service Enterprise Group (PEG), Diamondback Energy (FANG), Mosaic (MOS), Expedia Group (EXPE), CarMax (KMX), Nielsen Holdings (NLSN), Lincoln National (LNC), Ceridian HCM Holding (CDAY), and Vornado Realty Trust (VNO). Only two are unavailable on the Fidelity platform.