A sideways market may be here to stay for a while, but there are still ample opportunities for investors in stocks that trade sideways. Consider these short-term investment opportunities to build equity and capitalize on micro-price movements. The companies below are wide-moat companies with relatively reliable cash flow. Many offer attractive dividend yields, or their stocks are undervalued. Read on to find the best stocks that trade sideways.
Top Picks for Stocks That Trade Sideways
- ETFs Choice: US Cash Cows 100 Index
- International Positions: Himalaya Shipping Ltd.
- Telecommunications: Crown Castle
- High Yields: JPMorgan Equity Premium Income
- Energy: Duke Energy
5 Best Stocks That Trade Sideways
If you’re looking for current opportunities in a sideways trading market, the offerings here present excellent possibilities for growth or hedging in a sideways market.
1. Best for ETFs: US Cash Cows 100
US Cash Cows 100 (COWZ) is a $13 billion fund that invests in the top 100 companies of the Russell 1000 based on free cash flow yield. This measure can help select companies that produce more cash than what they need for operations, growth, and dividends. Top holdings include McKesson (MCK), Cisco Systems (CSCO), Zillow Group (Z), Builders FirstSource (BLDR), and Booking Holdings (BKNG).
Pros:
- Multi-factor exposure to value, momentum, size, quality, and yield
- Outperforming the S&P 500 and Russell 1000 Value in long-term and short-term results
- Unique sector exposure
Cons
- Concentrated positions and category
- Large mid-cap positioning
2. Best for International Positions: Himalaya Shipping Ltd.
Founded in 2021, Himalayan Shipping Ltd. (HSHP) has shown strong growth indicators. While it is not paying dividends, the global shipping vessel company has shown opportunities for sideways trading with possibilities for significant long-term growth.
Pros:
- International diversification
- Shipping positions
- Currently undervalued
Cons
- New company
- No dividends to date
3. Best for Telecommunications Investments: Crown Castle
Crown Castle (CCI) is positioned as an industry-leading US telecommunications infrastructure company with a $38.4-billion market cap. It owns over 40,000 cell towers and 85,000 miles of fiber optic infrastructure. Its stock is down 35% YTD, presenting investors with an interesting opportunity for a high-yielding “buy” with excellent prospects.
Pros:
- Wide margin
- Currently undervalued
- Positioned in growing markets
Cons
- Growing cell tower demand presents an opportunity, but only if they can adapt fast enough.
4. Best for High Yields: JPMorgan Equity Premium Income
JPMorgan Equity Premium Income (JEPI) is a $26.4 billion fund with an 8.48% yield and a yearly fee of just 0.35%. The actively managed fund seeks to provide equity exposure with less volatility. It generates monthly income by selling S&P 500 index call options.
Pros:
- Actively managed
- High yield (10.6%)
- Less volatility
Cons
- May significantly underperform in the next bull market
5. Best for Energy Investments: Duke Energy
Duke Energy (DUK) has a $67.46 billion market cap and supplies natural gas and electricity to 9 million in the south, east, and midwest US regions. It currently trades at over a 10% discount to fair value. On top of that, it pays a dividend yield of 5%. it’s up 2% YTD and trades at less than 20x PE, making it a smart choice in a sideways market.
Pros:
- Strong dividends
- Stable industry
- Growth YTD
Cons
- It’s trading down with its peers.
- Revenues are down
What Are Stocks That Trade Sideways?
A sideways trend in the stock market occurs when stocks maintain horizontal price movement driven by nearly equal forces of supply and demand. You’ll typically see sideways trading during a period of consolidation before the price rises higher or reverses into a new trend.
How to Choose Stocks That Trade Sideways
Traders can benefit from sideways trends in several ways. Factors traders typically consider when evaluating stocks trading sideways can include looking for confirmations of a breakout or breakdown or focusing on identifying horizontal price channels.
Look at Trade Volume
When the market trades sideways, the trade volume remains relatively stable. But before a breakout or breakdown, it may shoot up ahead of time, indicating market changes that traders could potentially profit from.
Check for Regular Rebounds
Some traders focus on horizontal price channels with a sideways trend. If a stock price has regularly rebounded from support and resistance levels, there are possible opportunities. Buying the security when the price is nearing support levels and selling when the price is nearing resistance levels can present short-term investment opportunities.
Wide Economic Moats
An economic moat represents a sustainable competitive advantage that sets a business apart from competitors and makes it difficult for rivals to capture its market share. These companies represent the possibility for long-term growth even in a sideways market.
Opportunities in Stocks That Trade Sideways
The stocks above provide some of the best current opportunities in stocks that trade sideways, but investors have the chance to look for new opportunities by watching trade volume, rebounds, and strong or even narrow economic moats for micro price movements. Ready to start trading?
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Frequently Asked Questions
Q: How do you find stocks that trade sideways?
A: To find stocks that trade sideways, consider identifying support and resistance levels within the market. Then, look for highly rated stocks with a narrow or wide economic moat and a low or medium uncertainty rating from rating systems.
Q: How do I choose stocks for position trading?
A: For position trading, you’ll want to take a position opposite the prevailing market sentiment. That means if most traders are selling (a bear market), you’ll look to buy, and vice-versa.
Q: How long can a stock trade sideways?
A: You might see the market trading sideways for up to two to five years. This occurs when flushes of liquidity prop it up, but it means that in real terms, the market will be worth 30%-50% less.