When building a portfolio of equity securities, diversification is a critical consideration. Stock investing involves risk. There’s no getting around the fact that stocks fluctuate with the market, the economy, company performance and other factors.
Since no one can definitively predict how any individual stock will perform, it makes sense to spread out investment risk by owning several stocks encompassing many different industries and covering differing aspects of the economy. One effective method of diversifying a portfolio is to buy and hold stocks from each of the 11 sectors.
Sectors Definition
Sectors are simply designated categories Wall Street uses to group companies, especially publicly traded companies with stock listed on major exchanges. The categories are helpful to investors who need to understand, in broad terms, what types of businesses they are investing in, how those businesses relate to the larger economy and how they might complement an overall equity portfolio.
The sectors we use today were not imposed on Wall Street by any government agency or regulatory body; they are not official or mandatory designations. The current sector system was created in 1999 in a collaborative effort between MSCI Inc. (ticker: MSCI) and S&P Global Inc. (SPGI). They were developed to make it simple for investors to compare companies and follow the performance of individual industries as compared to the broader market.
These sector designations are called the Global Industry Classification Standard, or GICS. They serve to standardize the organization of stocks. They were quickly adopted by the investment community, and are now considered indispensable to investors around the globe.
What Are the 11 GICS Sectors?
According to the GICS, the 11 economic and industrial sectors are as follows:
- Communication services
- Consumer discretionary
- Consumer staples
- Energy
- Financials
- Health care
- Industrials
- Information technology (IT)
- Materials
- Real estate
- Utilities
The Top Stocks in Each of the 11 Sectors
There are close to 2,800 stocks listed on the New York Stock Exchange and perhaps another 3,500 that trade on the Nasdaq exchange. Virtually all of them are assigned to one of the 11 GICS sectors. The sheer number of investment choices can sometimes seem overwhelming.
To help you cut through the confusion and make informed investment decisions for you and your portfolio, here is a timely list of top stocks from each of the 11 sectors:
Charter Communications Inc. (CHTR)
Sector: Communications services
Industry: Telecom services
CHTR is a $46 billion communications company that offers a wide range of telecom services to consumers and businesses in the U.S. The company is best known for providing cable TV and telephone services under its Spectrum brand in the 41 states it serves. Over the last two decades, it has evolved into a full-service digital communications firm.
The company offers internet, streaming video, mobile voice and data services, data security, Wi-Fi service, communications equipment and much more. It generates large amounts of advertising revenue by selling ad space to its sports, news and entertainment partners, and it leases bandwidth and cellular capacity to other internet and mobile providers, as well.
Telecom is a very competitive space, and earnings growth is not easy to achieve in that industry. Nonetheless, Wall Street estimates that the company will earn $33.75 a share in 2024 and grow earnings by about 4% to $35.12 in 2025.
McDonald’s Corp. (MCD)
Sector: Consumer discretionary
Industry: Restaurants
For more than two years, inflation has been a problem for the U.S. and the world economy. The quick-serve restaurant industry in the consumer discretionary sector has been particularly affected. Increasing food prices and the rising cost of labor have been a huge challenge to MCD and other fast-food chains that compete with each other on price.
That said, MCD has one of the most powerful brands in the world, and it has proven to be a highly dynamic and adaptable company with an able and innovative management team.
With inflation now down much closer to the Federal Reserve’s target rate of 2% and U.S. and other central banks aggressively lowering rates, it’s not unreasonable to look for better performance from MCD going forward.
Wall Street is estimating MCD will generate just over $26 billion in revenue in its fiscal 2025 year. That’s impressive given the inflationary pressure the company and its customers have been under. Revenue estimates are over $27 billion for fiscal 2026 – a healthy 3.8% annual increase that, if achieved, may be a harbinger for even better performance in the future.
MCD provides investors with a 12-month trailing yield of 2.2%.
PepsiCo Inc. (PEP)
Sector: Consumer staples
Industry: Non-alcoholic beverages
PEP is an iconic American company that owns several of the best-known and most-popular food and beverage brands in the world. Quaker Oats, Gatorade, Pepsi, Fritos and Aquafina are just a sample of the products it offers to global consumers.
The company has a market cap of $233 billion and provides a 12-month trailing yield of 3.2% to its shareholders. PEP has had a difficult time navigating the inflationary and rising rate environment. Consequently, it has lagged behind the broader market in recent months, and stock performance has been disappointing.
Inflation, however, has been largely tamed – the U.S. Bureau of Labor Statistics is reporting a manageable inflation rate of 2.5% – and the next move in interest rates is going to be down, not up.
Investors should use caution, but some analysts and advisors are recommending investors begin accumulating MCD in anticipation of an eventual turnaround.
Schlumberger Ltd. (SLB)
Sector: Energy
Industry: Oil and gas equipment
SLB is not an energy producer, but the company is nonetheless a vital player in that critical economic sector. The $61 billion company is a leading technology, equipment and services provider to all types of hydrocarbon energy companies, from exploration firms to storage, transportation and pipeline companies and beyond.
SLB has four divisions: digital integration, reservoir performance, well construction and production systems. Those divisions are expected to produce an estimated $36.9 billion in revenue in 2024 and $41.5 billion in 2026. That represents a robust annual revenue growth rate of over 12%.
Additionally, the stock provides a healthy dividend income. The annual forward dividend is currently $1.10 a share, which, based on the recent stock price, equates to a 12-month forward yield of 2.6%.
Morgan Stanley has an “overweight” rating on the stock, while UBS maintains a “buy” rating on SLB.
JPMorgan Chase & Co. (JPM)
Sector: Financials
Industry: Diversified banking
JPM is much more than just a bank. The company is a $602 billion financial services juggernaut.
It provides consumer and business depository accounts, credit cards and lending services through its Chase Bank commercial banking division, and brokerage, asset management and investment banking services through its JP Morgan brand.
Strong revenue generation and consistent earnings performance have allowed JPM to pay a high recurring dividend to shareholders. The annual forward dividend for JPM is currently $5, which equates to a 12-month trailing yield of 2.4%. JPM has paid a regular dividend since 1985 and has increased its payout every year for 14 consecutive years.
The company’s able CEO, Jamie Dimon, has let investors know that he’s going to retire sometime in the next three to five years, but investors need not be alarmed. The company is already actively engaged in searching for his replacement, and Mr. Dimon will have a great influence over the choice of his successor.
Pfizer Inc. (PFE)
Sector: Health care
Industry: Pharmaceuticals
Based in New York City, PFE is a $167 billion global pharmaceutical giant that manufactures, markets and sells drugs and other biopharmaceutical products to medical practices, hospitals and drug stores all over the world.
In addition to the extensive line of drugs and medical treatments already on the market, PFE has a promising pipeline of pharmaceuticals in various phases of testing and development. The company is also an important provider of vaccines and therapeutics.
PFE benefits from its huge, international networks of distributors and a large number of salespeople in the field. Pfizer sells to hospitals, drug stores, wholesale drug distributors and government health services around the globe.
PFE also maintains several important and profitable strategic partnerships with other firms in the health care sector. Among those partners are the prominent industry players Bristol-Myers Squibb Co. (BMY), Merck & Co. Inc. (MRK) and Astellas Pharma Inc. (OTC: ALPMY).
Income investors will be pleased to learn that PFE carries a 12-month trailing yield of 5.7%.
General Dynamics Corp. (GD)
Sector: Industrials
Industry: Aerospace and defense
CFRA Equity Analyst Garrett Nelson is quite bullish on the $83 billion defense company, GD. On Sept. 21, Nelson published a research report reiterating his “buy” rating and, citing a healthy long-term growth outlook for the aeronautics and defense industry, set a price target of $325 for the stock, which closed at $304.67 on Sept. 24.
GD is an aerospace and defense company with a market cap of about $84 billion. It is the company behind the U.S. Navy’s most advanced nuclear submarines and the high-tech Abrams tank. On the civilian side of the business, the company manufactures and sells the popular Gulfstream line of business jets.
Wall Street is looking for strong earnings growth from GD over the next year. Analysts estimate earnings per share of $14.50 for 2024 and $16.40 in 2025. If the company achieves those numbers, it would mean year-over-year earnings growth of more than 13%.
Microsoft Corp. (MSFT)
Sector: Information technology (IT)
Industry: Software, infrastructure
MSFT needs no introduction among tech investors. This $3.2 trillion mega-cap is one of the most recognized and most powerful names in the IT sector.
The firm develops and distributes a wide variety of software and hardware. It is also a premier global provider of computing and gaming services. MSFT is a leader in business productivity tools and consumer and enterprise technology. The Microsoft Office software suite of products is one of the most widely used subscription-based software packages in the world.
The company is expected to generate $279 billion in revenue in 2024 and an astounding $318 billion in 2025. That’s an annual revenue growth of 14% – a very impressive number for a mature, established company of that size.
Of particular interest to tech investors is the fact that MSFT is making a concerted effort to develop artificial intelligence (AI) microchips to compete with industry leader Nvidia Corp. (NVDA).
Freeport-McMoRan Inc. (FCX)
Sector: Materials
Industry: Copper mining
Few companies enjoy a better reputation in the materials sector than FCX. With a market cap of $70 billion, this company is an established leader in the metals and mining segment, especially in copper production and gold mining.
In addition to copper and gold, which are the firm’s bread and butter, FCX produces large quantities of silver and the important but lesser-known metal molybdenum, which is a critical element in hardening steel so it can be used in high-stress industrial applications.
FCX is based in Phoenix, but is active in New Mexico, Colorado, South and Central America, and Indonesia.
On Sept. 4, the equity research department of UBS Securities upgraded FCX from “neutral” to “buy.” Morgan Stanley also has a positive outlook for the stock. That firm rates FCX “overweight.”
Digital Realty Trust Inc. (DLR)
Sector: Real estate
Industry: Specialty REIT
DLR appears to be in the right business at the right time. As of market close on Sept. 24, the stock has appreciated by more than 20% year to date, matching the impressive performance of the S&P 500.
This $54 billion REIT owns and operates data centers and server farms in over 25 countries on six continents. DLR is benefiting from a tremendous increase in demand for such facilities brought on by the increasing popularity of AI and crypto assets.
But, DLR is more than just a landlord who rents space to tech firms. It is a trusted consultant for its tenants. The company offers advice on hardware, software, data storage – including cloud-based data storage – and more.
Revenue at DLR is growing fast and is showing no signs of slowing down. Wall Street is looking for $5.5 billion in revenue from the company in 2024 and is expecting that number to grow by about 1% to $6 billion in 2025. DLR might be able to grow even faster, but it is having trouble building new facilities fast enough to keep up with demand.
American Water Works Co. Inc (AWK)
Sector: Utilities
Industry: Water service
In today’s high-flying era of tech investing, a publicly regulated water company might not seem like a very exciting investment option. But AWK, a 138-year-old water services company, deserves the attention of long-term investors.
AWK provides water and sewer services to residential and commercial customers in 24 states and on several military installations in the U.S. – most prominently in Georgia, Indiana, Iowa, Kentucky, Maryland, Tennessee and Virginia.
Based on Wall Street estimates, investors can expect AWK to generate $4.5 billion in revenue and $4.7 billion in 2025. That would represent annual revenue growth of more than 4%, which is not bad considering any rate increases have to be approved by numerous state governments.
AWK is spending large amounts of capital right now to improve and modernize its pipeline network and other infrastructure. Once that important project is completed, investors should see improving financial results.
AWK has a 12-month trailing yield of just over 2.1% and has raised its annual dividend every year for 17 consecutive years.