Best Industries to Invest in Right Now

While investing in individual stocks can produce good results for long-term investors, some investors prefer to put their money into the stocks of entire industries that they consider potentially profitable. For example, if you had invested in the growing personal computer industry in the late 1980s, your returns would have skyrocketed over time. Clearly, it's important to understand the best industries to invest in.

Why Invest in Industries?

Businesses formed around a new product or idea in the early stages of development are known as emerging industries. When successful, these industries typically offer the highest returns on investment. 

Even though emerging industries may seem to be riskier investments initially, the higher the risk involved, the higher the potential rewards if the market ultimately agrees with your choice and you have the risk appetite to wait until that happens. 

Once you’ve selected an emerging industry to invest in, you can then diversify within the industry by investing in several stocks within that particular stock market sector. Depending on your risk tolerance, you may choose stocks in an industry with a product or service that has proven potential, or you may choose more speculative stocks in an industry that has yet to show profits in the current economic environment. 

12 Best Industries to Invest in

The key to choosing a quality stock sector consists in identifying the sectors that either currently outperform the market or are expected to outperform the overall market within your investment time frame. 

Before identifying specific economic sectors to invest in, you should first familiarize yourself with the Global Industry Classification Standard (GICS) which is widely used by professional fund managers and investors. The GICS was created in 1999 by Standard and Poors (S&P) and Morgan Stanley Capital International (MSCI). 

This investment tool is used by fund and portfolio managers all over the world to determine the best sectors and companies within those sectors to invest in. The GICS divides the economy into 11 major sectors based on their size. 

You can find listed below each of those 11 sectors and what business niches they include, as well as some promising companies in the sector:

Information Technology (IT)

Computer software and hardware, information services, semiconductors and other related products. Well-known companies in this sector include Apple Inc. (NASDAQ: AAPL), Microsoft Inc. (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOG). 

Financials

Banks, insurance companies and other financial institutions fall into this market sector. Companies in this sector include JPMorgan Chase & Co. (NYSE: JPM), American Express (NYSE: AXP) and Bank of America (NYSE: BAC).

Health Care

Pharmaceutical, biotechnology and life science companies make up the healthcare sector. Companies in the healthcare sector include Pfizer (NYSE: PFE), Gilead Sciences (NASDAQ: GILD) and Johnson and Johnson (NYSE: JNJ).

Consumer Discretionary

This sector includes companies from a variety of businesses, such as consumer durables, apparel, automobiles and parts, consumer services, and retail businesses. Examples of companies in this sector include Amazon.com (NASDAQ: AMZN), Tesla Motors (NASDAQ: TSLA), McDonald’s Corp. (NYSE: MCD) and Starbucks (NASDAQ: SBUX).  

Consumer Staples

Food and beverage companies and those dealing in staples, tobacco and personal and household products are examples of the businesses operating in this sector. Companies include Coca-Cola (NYSE: KO), Walmart (NYSE: WMT) and Proctor and Gamble (NYSE: PG). 

Communication Services

Companies in the telecommunications, media, social media and wireless services business make up this sector. Examples include Netflix, Inc. (NASDAQ: NFLX), Verizon Communications Inc. (NYSE: VZ) and Twitter (NASDAQ: TWTR)

Industrials

This sector encompasses a wide range of companies involved in transportation, engineering, defense contracting, and heavy equipment or construction machinery manufacturing. Well-known companies in this sector include Deere & Co. (NYSE: DE), Lockheed Martin Corp. (NYSE: LMT) and FedEx Corp. (NYSE: FDX).

Materials

This sector is made up of companies involved in mining; paper and forest products; packaging and containers; construction materials; and chemicals. Weyerhauser Co. (NYSE: WY), Dupont de Nemours (NYSE: DD), Ecolab Inc. (NYSE: ECL), and Air Products and Chemicals (NYSE: APD) are some of the companies in this sector. 

Real Estate

Companies involved in real estate, such as real estate management and development and real estate investment trusts, comprise this sector. Some examples of companies in this sector include American Tower Real Estate Investment Trust (REIT) (NYSE: AMT),  Crown Castle (NYSE: CCI), Prologis (NYSE: PLD) and Public Storage (NYSE: PSA).   

Energy

In the energy sector, you’ll find energy equipment and services, oil and gas companies, and other companies involved in the extraction of energy commodities. Some of the largest companies in the world can be found in this sector, like ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX) and Halliburton (NYSE: HAL).

Artificial Intelligence

Artificial intelligence (AI) has become a major driver of innovation in recent years, and its potential for industry disruption is only growing. AI has the potential to revolutionize virtually every sector, from healthcare to retail to finance. As such, it is becoming an increasingly attractive area for investors looking to capitalize on the rapidly growing technology.

Utilities

This sector is mainly composed of companies that operate electric, gas and water utilities, plus renewable energy producers. Some of the largest companies in the sector include NextEra Energy (NYSE: NEE), Duke Energy (NYSE: DUK) and The Southern Company (NYSE: SO).    

Choosing the best stock market sectors to invest in depends in large part on the state of the economy, the present stage of the business cycle, your forecast for the overall stock market, and current technological and geopolitical developments. 

For example, if the economy is in a recession and the stock market was weak overall, then investing in the consumer staples sector might make sense since these companies generally weather adverse economic conditions quite well. 

Furthermore, if a product appears that might change or disrupt the technological landscape, such as a new type of computer, smartphone, or software application, then investing in the relevant technology sector might produce the highest returns. For example, think of how profitable it would have been to invest in Apple Inc. 20 years ago or Tesla 10 years ago. 

Which Industries Are Safest for Investors?

If you have a low tolerance for risk and prefer to invest in companies that tend to be resilient in difficult economic times, then certain industries provide considerably more safety than others in economic downturns. The safest and most resilient industries for investors typically include:

• Food: No matter how bad the economy gets, people still need to eat. This is one of the reasons that food companies tend to weather the worst economic conditions quite well. Stocks of companies involved in grains, beverages, fruits and vegetables, cereals, and related industries, such as food processing and packaging, tend to provide investors with a good defensive position in tough economic times. 
• Fast Moving Consumer Goods (FMCG): This industry provides society with a broad spectrum of daily-use products like cosmetics, soaps, paper products, batteries, toiletries, detergents and dental products. Like food, people tend to continue using these products regardless of the state of the economy, so the companies that provide them are also considered defensive investments. 
• Utilities: Utilities are another industry that typically continues to produce returns regardless of the state of the economy since households still use their services. When investing in utilities, be aware of legal liabilities that may arise in the operations of the company. For example, Pacific Gas and Electric (NYSE: PGE) faces numerous lawsuits due to the recent wildfires in California that can hurt its prospects as an investment. 
• Legal Industry: The service-oriented legal and compliance sector tends to perform reasonably well regardless of the state of the economy. Since legal conflicts and challenges seem to be a part of life in U.S. society, companies in this type of business tend to outperform lagging markets. 
• Health care: As another industry that typically shows resilience during periods of economic challenge, the health care industry could be an ideal place to invest, especially if you think pandemics could become more frequent.  
• Technology: Despite being somewhat riskier than the previously mentioned industries, investing in technology companies helps shape the future. New technology companies appear every day and could offer long-term investment possibilities and returns unavailable in other industries.

When Should You Exit a Stock Sector?

The economy is in a constant state of flux, regularly expanding and contracting as a matter of course. Whether the economy is in a state of growth or contraction can in part determine which sectors would be best for you to invest in and which sectors you should think about exiting. 

The 11 major market sectors listed above also perform differently depending on the state or phase of the economy. Some sectors tend to outperform the market, while others will typically underperform under the same conditions. 

A prudent strategy would be to exit the economic sector or sectors that are likely to underperform the overall market given the current stage in the business cycle. You can then use those investment funds to buy into a sector that would benefit under the same economic conditions and business cycle stage. 

The Benefits of Stock Sector Rotation

Sector rotation is defined as the process of selling out of sectors when the business cycle stage suggests that the sector will underperform in order to allocate those funds into sectors that are more likely to outperform the market in the future. 

One easy way to apply sector rotation consists of investing in exchange-traded funds (ETFs). These financial instruments typically invest in a wide variety of stocks, and some ETFs specialize in holding stocks in particular industrial sectors. You can rotate sectors much more easily using ETFs than if you traded a basket of stocks yourself, and you would also save considerably on commissions. 

In a diversified portfolio, you could allocate some funds to favor a particular industry and yet maintain diversification by only allocating a percentage of your portfolio. Keep in mind that regardless of the sector, some stocks may perform well within the sector, while others may not perform well at all. This argues for performing your due diligence and researching your investments carefully before committing funds.  

Best Online Stock Brokers

Benzinga has selected a number of stock brokers that are a fit for beginner to advanced traders. They are summarized in the list below. 

Today's Stock Movers

Finding Investment Opportunities in Top Industries

Due to the availability of a wide range of ETFs, you can easily buy and sell industry sectors by using these formidable investment instruments. If you have an extensive portfolio, you can even quickly somewhat hedge your stock positions within a particular sector by offsetting the position with a suitable amount of an ETF that specializes in that sector. 

Basically, by maintaining your investments in various sectors, you can favor and add to investments in sectors you feel will outperform the market, while reducing your exposure to less favorable sectors. 

Frequently Asked Questions