How do industries help investors diversify their portfolios? What are the main strengths and weaknesses of the Consumer Discretionary and Cyclical sectors? More specifically, what are the characteristics of the grocery and restaurant subsectors? Learn the pros, cons, and best stocks of these industries!
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You’ll Learn
- First, let’s address how to use subsectors to diversify an investor’s portfolio. At DSR, we believe that investors should not invest more than 20% in a single sector. We also think that investors should only invest in sectors that they understand. Mike explains why we believe that and how looking at each sector’s different industries can help.
- Some sectors are more diversified than others. Which ones could investors invest in more than 20% without too much risk?
- And what about companies that fit into multiple sectors or subsectors? How to classify them?
- Grocery stores are part of the consumer staples (or consumer defense) sector. Let’s do an overview of this sector’s strengths and weaknesses.
- The Grocery Stores industry is stable, recession-resistant, and easy to understand. However, high competition and thin margins can make things complicated.
- Of course, grocery stores are essential, so they seem reliable at any time. But what makes them perform at their best? And when are they negatively impacted?
- Metro (MRU.TO), Empire (EMP.A.TO), and Kroger (KR) represent the industry well. What makes them among the best stocks for this subsector?
- We could make a direct link between Groceries and Restaurants. Yet, they’re not in the same sector. Restaurants are part of the Consumer Discretionary (or Consumer Cyclical). What’s the main difference for this sector?
- Restaurants are pretty easy to understand, but there are almost two industry types in the same subsector: steak and burger!
- Restaurants are more inclined to perform well during good economic situations. Convenience, brand name, and economies of scale are other strengths to consider.
- On the other hand, the franchise system is a double-edged sword.
- We selected three companies that are direct competitors in the fast food restaurants: Restaurant Brands International (QSR), A&W Revenue Royalties (AW.UN.TO), and McDonalds (MCD). Why are they part of the best restaurants?
- Then, we have Starbucks (SBUX), the deluxe coffee shop, and Keg Royalties (KEG), a well-known steakhouse and bar chain. How do they differ from fast food, and does Mike like them both?
Related Content
Catch up on the series with the first episode on Pipelines and Utilities.
For more analysis of companies offering luxury treats at cheap prices, watch this video below!
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