What Are Big Uglies?
Big uglies is a shoptalk term used for large, older companies operating in hard, purported "messy," industries, for example, manufacturing, oil, steel, and mining. These types of stocks tend to be unpopular with younger investors, with their generally dogged, steady returns and resistance to volatility often being overlooked for more exciting, higher-growth companies on the cutting edge of an industry.
Over the years, the criteria of what constitutes a big monstrous have broadened. These days, the term generally refers to a wide range of undesirable investments. Big uglies are generally household names with a stable market share in established industries
Understanding Big Uglies
Big uglies traditionally denoted stocks in the manufacturing and infrastructure industries. As technology has advanced, the term has slowly loosened and is presently more comprehensive of any company in any unfashionable sector.
Being unpopular means big uglies typically trade at low price-to-earnings (P/E) and price-to-book (P/B) ratios, putting them solidly in the value category of investing. However, numerous investors prefer to chase the higher returns potentially provided by the racier, more saturated parts of the stock market. Investors who need to make heaps of money or have short-term objectives may not be interested in big uglies because they simply don't experience enough quarterly growth.
Examples of Big Uglies
In technology, hardware makers and connectivity stocks are considered outdated and therefore are likewise considered big uglies. In the finance industry, the term can be used to describe stable, large commercial and retail banks. Most utilities are considered big uglies, too, as are traditional consumer products.
Numerous big uglies are multinational corporations (MNC) that over the years have needed to broaden their offerings. Because they are tapped into several different continents and client bases, their revenues tend to be limited because it is unlikely that all end markets will simultaneously be profitable.
Advantages and Disadvantages of Big Uglies
Albeit the name brings negative meanings, big uglies can be an important part of an investor's balanced portfolio. Big uglies tend to experience slow but steady long-term growth, earnings, and dividends and are typically household names with robust brand recognition.
These characteristics probably won't appease investors eager to time the market and generate high returns from exchanging stocks. However, big uglies can meet the requirements for those investors who are all searching for long-term value at affordable prices. Every portfolio ought to arguably contain a modest bunch of lower-risk, more stable stocks. While they probably won't provide bumper returns, investors can generally know what's in store when they invest in big uglies.
The case for remembering big uglies for a portfolio is particularly strong in times of economic hardship. During recessions and periods of volatility, big uglies have proved to be effective at churning out profits and retaining support. Along these lines, they can help to hold down a portfolio and curb losses when other racier, overcrowded stocks get pummel in a bear market.
However, what this sort of diversification does offer in return is reassurance. For example, a downturn in one market country can be offset by favorable economic conditions in other market countries. Likewise, problematic manufacturing conditions in one plant can be offset by normal manufacturing conditions in another.
While there is certainly a case to be made for investing in big uglies, youthful investors with long time skylines and big financial goals to meet before retirement should refrain from including too a large number of them in their portfolios.
Like some other investment, big uglies require due diligence. Some large, stable, and old companies might be in structural decline, serving industries that are dying out and being replaced. That means that while they could have been steady in the past, the future could have different outcomes
Not all companies that fall into the big uglies category fare well during recessions. In reality, industries like manufacturing, oil, steel, and mining are very capital intensive and, by nature, quite cyclical.
- These stocks typically trade at low valuations as their generally steady returns are often overlooked for new and exciting, higher growth opportunities.
- As technology has advanced, the term was slowly loosened to define companies in any unfashionable and reliable sector.
- Big uglies refer to older, stodgy companies found in industrial sectors like manufacturing, oil and gas, and mining.
- Their status as household names with stable market share in established industries makes big uglies a useful component of a well-balanced investment portfolio.