Diversification is key to a successful portfolio, and most investors know that you want to have a good mix of stocks in different industries. That’s the easy part — the challenge is knowing which stocks to purchase in a given industry or sector.
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Choosing stocks to invest in based on your preferences is a good place to start — after all, Warren Buffett often said, “buy what you know.” But you want to choose the best companies out of the ones you know.
Here are four brands you want to consider, and four you may want to pass up.
Buy Costco, Not Target
Morningstar said Costco (COST) benefits from its loyal customer base of 76 million members who pay annually for the privilege of shopping there, and renew those memberships at a rate of 90%. While retail can be a challenging sector in uncertain economic times, Costco’s reputation for quality goods at rock bottom prices bodes well for its success, even as prices rise.
Target (TGT) stock is down 32% in the past year, primarily due to consumer backlash from its very public cancellation of its diversity, equity and inclusion policy. Despite the retailer’s insistence that it still values employees and customers from every demographic, many shoppers have abandoned the Target ship and may never return. The chain’s recent decision to eliminate price matching didn’t win any points with consumers either.
Buy General Motors, Not Tesla
General Motors (GM) stock is up 21% in the past year, although it’s down slightly this year (1.4%). It has a 1-year target estimate of $57.10, up almost 10% from its Aug. 1 close of $52.53. Given the uncertainty around tariffs, this is nearly as good as it gets for automotive stocks at the moment. General Motors has been through tough times before and has always come through.
Telsa (TSLA) stock is down 25% this year, and while diehard fans will say it’s time to ‘buy the dip,’ the uncertainty of the overall economy, the automotive sector, and the electric vehicle (EV) industry should give you pause. Tariffs will hit the auto industry hard, and the elimination of EV credits is a one-two punch for Tesla and other EV companies.
Buy Yum Brands, Not Denny’s
Yum China Holdings (YUMC), owner and franchisor of KFC, Pizza Hut, Taco Bell and other fast-food chains, is up 55% in the past year, and analysts expect continued success. Restaurant stocks can be volatile in times of uncertainty, and food and labor cost pressures are likely to continue, but Yum Brands, with its focus on cheap, filling food, could fare better than most.
Denny’s Corporation (DENN) stock has dropped nearly 50% in the past year and traded at $3.60 per share as of Aug. 1. The breakfast-centric chain has seen an outsize impact on costs due to the rising price of eggs, a staple menu item and common ingredient in its dishes. Rising costs in the razor-thin margin environment of quick-service restaurants have Denny’s scrambling to finance its outsize debt, and the result is increased risk.
Buy Disney, Not Six Flags
Disney (DIS) has long been a darling of investors, and the current environment is no different. Up 25% in the past year, the entertainment juggernaut may face less risk from tariffs than many other companies, and the diversification of its businesses bodes well for economically uncertain times. Analysts expect a modest increase in the share price over the next 12 months, from $116.59 on Aug. 1, to an average of $129.89 in a year.
Six Flags Entertainment Corporation (FUN) shareholders have seen their investment decline 37% over the past year. While some analysts recommend buying, the company itself has indicated that its foot traffic in parks declined in the second quarter. The company cited poor weather as a reason that people may be staying away from theme parks, and it remains committed to improving its parks.
No matter which brands you buy, it’s important to do your homework. Look at past performance and analyst expectations for future results. Consider how the overall economy may affect the companies whose stocks are on your list. And, once you’ve bought, keep an eye on them to make sure they’re performing as you expect. If not, it may be time to sell and buy something new.
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This article originally appeared on GOBankingRates.com: Don’t Waste Time on These 4 Brands’ Stocks — Buy These 4 Brands Instead
