Consider Adding These 3 Stocks As Money Rotates Out of Growth
Investors have had to deal with several complicated factors impacting equity markets throughout 2021, as issues like inflation and the possibility of rate hikes have loomed large. Whether it was news surrounding the Federal Reserve or red hot CPI prints that impacted stocks, the ability to recognize when rotations occurred in the market has been a truly essential skill over the last few months.
That continues to hold true as we wind down 2021, as we are currently witnessing many high-growth companies getting taken to the woodshed as money moves out of tech winners and into companies that can perform well in a rising-rate environment.
While it's easy to be overwhelmed by the vicious moves in and out of sectors that have occurred lately, there’s plenty of opportunities for savvy investors to take advantage of. Keeping an eye on stocks that are showing relative strength and adding reliable companies with rock-solid fundamentals can be a great way to navigate this type of market environment.
That’s why we’ve put together a rotation playbook that includes some of the best stocks to buy amidst all of the different moving parts in equities at this time. Let’s take a deeper look below.
1. Morgan Stanley
The financial sector has been quiet over the past few weeks, yet stocks like Morgan Stanley are seeing inflows again during the recent rotation. Keep in mind that banks tend to perform well in rising interest rate environments, which is a good reason to consider adding shares given that the Federal Reserve has announced it will begin tapering its bond purchases in the coming weeks.
Since Morgan Stanley (NYSE:MS) is one of the largest financial services firms in the U.S., with operations in investment banking, securities, and investment and wealth management, it stands out as a great option for investors looking to add exposure to the sector.
Morgan Stanley reported revenue growth of 26% year-over-year in Q3 to $14.8 billion and is seeing strong performance across all business segments at this time. It’s worth mentioning that if you expect the IPO market to stay hot, adding shares of this company makes a lot of sense given its incredibly strong investment banking business.
Keep in mind that after acquiring E-TRADE Financial (NASDAQ:ETFC) and Eaton Vance (NYSE:EV), Morgan Stanley is set to benefit from strong equity trading volumes and recurring revenue from investment and wealth management clients going forward. Finally, the fact that the stock currently offers investors a 2.82% dividend yield makes it a top pick with so much uncertainty in the market.
2. Nucor
We often see money rotate into cyclical stocks after a huge run in tech, and that could be the case again as we head into the end of the year. That’s why Nucor (NYSE:NUE) should be in your rotation playbook, as it's one of the best steel stocks to consider owning for the long term.
Nucor is a major manufacturer of steel and steel products and is also North America’s largest steel recycler, which means it’s a company that plays a key role in the overall economy. This is good news since two of the largest end markets for steel products—autos and construction—are rebounding strongly following the pandemic.
Nucor recently delivered record Q3 earnings of $7.28 per diluted share, up 44% sequentially, and provided an upbeat take on the upcoming quarter, which should give investors more confidence in adding shares.
It’s also worth mentioning that Nucor is a dividend aristocrat stock, meaning that it has increased its base dividend every year for at least 25 consecutive years. Investors should expect strong demand for Nucor’s products to continue into 2022, which could mean that higher share prices are on the horizon for this leading steel company.
3. United Parcel Service
Another area of the market that could benefit from money rotation out of high-growth stocks is the transports sector, with United Parcel Service (NYSE:UPS) standing out as one of the best buys there.
The package delivery company is set to benefit from an increase in consumer goods spending in the coming quarters and should deliver a nice quarter given that the holiday season is one of the busiest times of the year. There’s also a lot to like about the company’s exposure to e-commerce, which should continue driving earnings growth over the long term.
United Parcel Service recently announced that the published rates for UPS Ground and UPS Air services will increase by an average of 5.9% going into 2022, which should certainly benefit the company’s top-line going forward.
The stock also offers a 1.93% dividend yield which is attractive given how we continue receiving signs that inflation is increasing. It wouldn’t be surprising to see UPS rally to new highs heading into 2022, so consider adding shares of this transportation giant in the coming sessions.