What are the big ugly?
Big Ugly is a slang term used for older large companies operating in tough, so-called “dirty” industries such as manufacturing, oil, steel, and mining. These types of stocks tend to be unpopular with younger investors, as their consistent and persistent returns and resistance to volatility are often overlooked in favor of more interesting and faster-growing companies at the forefront of an industry.
Over the years, the criteria of what constitutes a great ugly has been expanded. Today, the term commonly refers to all kinds of underprivileged investments. The big ugly ones are generally household names with a stable market share in established industries.
- The big ugly ones refer to older, heavier companies found in industrial sectors like manufacturing, oil and gas, and mining.
- As technology advanced, the term was gradually loosening to define companies in any out-of-fashion and trustworthy sector.
- These stocks are typically traded at low valuations, as their generally constant returns are often overlooked in favor of new and exciting opportunities for higher growth.
- Their status as household names with stable market share in established industries makes the big ugly ones a useful component of a well-balanced investment portfolio.
Understanding the big ugly
The big ugly ones traditionally denoted stocks in the manufacturing and infrastructure industries. As technology has advanced, the term has gradually been loosened and now encompasses more of any company in any old-fashioned sector.
Being unpopular means that the big ugly ones typically trade at low price-earnings (P / E) and price-book (P / B) ratios, placing them firmly in the investment value category. However, many investors prefer to pursue the potentially higher returns provided by the more aggressive and saturated parts of the stock market. Investors who want to make a lot of money or have short-term goals may not be interested in big ugly things because they just don’t experience enough quarterly growth.
Examples of big ugly
In technology, hardware manufacturers and connectivity stocks are considered old-fashioned and therefore also considered big ugly. In the financial industry, the term can be used to describe large and stable commercial and retail banks. Most utilities are also considered big ugly, as are traditional consumer products.
Many big ugly ones are multinational corporations (MNCs) that over the years have had to expand their offerings. Because they operate across multiple continents and different customer bases, their revenues tend to be limited because all end markets are unlikely to be profitable simultaneously.
Advantages and disadvantages of the big ugly
Although the name carries negative connotations, the big ugly ones can be an important part of an investor’s balanced portfolio. The big ugly ones tend to see slow but steady long-term growth, profits, and dividends and are typically household names with strong brand recognition.
These characteristics may not appease investors eager to sync the market and generate high returns from stock trading. However, the big ugly ones can tick all the boxes for those investors looking for long-term value at affordable prices. Arguably, each portfolio should contain a handful of lower-risk, more stable stocks. While they may not provide extraordinary returns, investors can generally know what to expect when investing in big ugly products.
The argument for putting big ugly things in a portfolio is particularly strong in times of economic hardship. During recessions and periods of volatility, the big ugly ones have proven effective at generating profits. and withholding support. In this way, they can help keep a portfolio low and curb losses when other, more aggressive and overcrowded stocks are hit in a bear market. However, what this type of diversification offers in return is peace of mind. For example, a recession in one market country can be offset by favorable economic conditions in other market countries. Also, problematic manufacturing conditions in one plant can be offset by normal manufacturing conditions in another.
While there is certainly a case for investing in big ugly things, young investors with long-term horizons and big financial goals to meet before retirement might want to refrain from including too many of them in their portfolios.
Like any other investment, the big ugly ones require due diligence. Some large, stable, old companies may be in structural decline, serving industries that are disappearing and being replaced. That means that while they may have been stable in the past, the future could have different outcomes.
Not all companies that fall into the big ugly category do well during recessions. In reality, industries such as manufacturing, oil, steel and mining are very capital intensive and by nature actually quite cyclic.