Know the differences + earn income by renting them out ….
Written by a human (me), not Ai
Last time I explained how some people invest backwards, resulting in owning a mish-mash portfolio of stocks. Here’s that note if you missed it.
I also explained that your portfolio can be perfectly well-performing with diversified, set-and-forget ETFs & funds.
It doesn’t necessarily need individual stocks, which may require more monitoring.
But some investors like picking stocks and enjoy analysing them. So this note provides colour on 7 different categories of stocks you should be aware of.
Each category behaves differently and does a different job in a portfolio. Some stocks straddle categories. And some types are more suitable for earning additional income via options.
Quick note .. The stocks I mention below are just examples – and may not fit their category going forward. Things always change so treat them as illustrations, not a shopping list.
In our live classes we run real-time screens with screening tools to uncover the exact stocks that work right now, with current data.
The Categories …
1. High Dividends
These stocks pay owners a higher level of cash dividends. Our sweet spot for dividend yield is 4-7% pa.
Note that a high yield alone is not meaningful. What matters more is: can the company can keep paying it? So we seek a high yield AND the sustainability to back it.
We check sustainability using metrics like revenue growth and a sensible payout ratio.
Examples: Natwest Group, National Grid, Verizon.
The income angle: On top of the dividend, you can own and rent out stocks using Call Options. That earns 1-3% in monthly income on top of the regular dividend. Two rents from one asset.
2. Quality Blue-Chips
Large, quality companies with strong business models.
‘Quality’ characteristics include low debt, solid balance sheet, and a track record of consistent earnings growth.
These are companies most likely to still be going strong in 10+ years.
Examples: Microsoft, Nestlé, Unilever.
The income angle: Own a quality business, then rent it out with covered call options for monthly income.
Or get paid to buy it in the first place, below today’s value, by selling put options. That’s how Warren Buffett uses options too.
3. Sold-Off Stocks
Good businesses that have been temporarily marked down, say by more than 10%, on short-term sentiment rather than a broken business.
This is about taking advantage of short term corrections to acquire and accumulate quality companies.
The income angle: one great thing about options is their income increases during periods of volatility. I explained that here.
4. Value Stocks
These are stocks that are cheap relative to the market, to peers, or Vs the value of their own assets.
There are numerous value metrics, including low P/E and Price/Sales, and valuations sitting below what the business is intrinsically worth.
‘Value’ as a concept sounds logical: i.e. better to buy a cheap stock Vs an expensive one. But take care not to get into a ‘value trap’ …
As this shows, value stocks have underperformed growth stocks, particularly this century.
5. Growth Stocks
Companies that are strongly growing their revenues and earnings, above the market average. Tech and non-tech.
The trade-off is occasional higher volatility. Bigger potential, but bigger swings. Sometimes leading to overvaluation concerns.
Examples: Nvidia, Tesla, Rolls-Royce.
6. Defensive Stocks
More mature, lower-growth companies that are less sensitive to economic or wider uncertainty.
People will always still need electricity, medicine, food, or tobacco.
Defensives experience lower volatility (and lower growth). Also measured by a low beta.
Examples: National Grid, GSK, Johnson & Johnson.
7. Metals and Commodities
This category is less about stocks and more specifically related to metals and commodities.
It can include Gold, Silver, or producers and miners of commodities – whose share prices are linked to the price of what they dig up.
Examples: Gold ETCs, Rio Tinto, Glencore.
The income angle: Gold or other commodities generate zero income. No dividend or interest.
But when owned through an ETF, it can be rented out out via options to manufacture an income from an asset that normally has zero.
Stock Screening
In our Investment Accelerator classes, we together do real-time screening for these stocks. Step by step, live in class, to uncover fresh new opportunities.
Then, in the options class, we go further to then earn additional income by renting them out via live trades, done together in class. Which people can can then take and run the whole process on repeat.
For a brief chat on how we screen for quality high-yielding stocks and rent them out for income, book a call with me here.
PS
NOBODY will care about your money like YOU will …
The Investment Accelerator has transformed how thousands of people now invest. Creating diversified passive portfolios for Growth and Recurring Income.
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Always Remember:
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Stay Diversified
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Financial Markets are a great source of recurring income
ETFs, Balanced Funds and Options achieve all the above
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– Don’t take the above as advice as it may not apply to you personally
– Your Capital is at Risk
– You may not be covered by the FSCS
– Anything mentioned in a podcast or in a previous article was valid at that time and may not continue to be now
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About Me
Manish Kataria is a Fund Manager. A CFA-qualified professional with 18 years’ experience in investment management and UK property. He has managed investment portfolios for JPMorgan and other blue chip investment houses. Asset classes managed include Equities, ETFs, Bonds, Funds and Options. Within property, he invests in and owns a range of assets including developments, HMOs, BTLs and serviced accommodation. InvestLikeAPro was set up so anyone can invest like a pro.
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