What Are Big Uglies?
Big uglies is a slang term used for large, older companies operating in hard, so-called “dirty,” industries such as 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 in favor of more exciting, higher-growth companies on the cutting edge of an industry.
Over the years, the criteria of what constitutes a big ugly have broadened. Nowadays, the term commonly refers to all kinds of out-of-favor investments. Big uglies are generally household names with a stable market share in established industries
- Big uglies refer to older, stodgy companies found in industrial sectors like manufacturing, oil & gas, and mining.
- As technology has advanced, the term was gradually loosened to define companies in any unfashionable and reliable sector.
- These stocks typically trade at low valuations as their generally steady returns are often overlooked in favor of new and exciting, higher growth opportunities.
- Their status as household names with stable market share in established industries makes big uglies a useful component of a well-balanced investment portfolio.
Understanding Big Uglies
Big uglies traditionally denoted stocks in the manufacturing and infrastructure industries. As technology has advanced, the term has gradually loosened and is now more all-encompassing 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 firmly in the value category of investing. However, many investors prefer to chase the higher returns potentially provided by the racier, more saturated parts of the stock market. Investors who want to make lots of money or have short-term goals 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 old-fashioned and therefore are also 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.
Many big uglies are multinational corporations (MNC) that over the years have had 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
Although the name brings negative connotations, 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 usually household names with robust brand recognition.
These characteristics might not appease investors eager to time the market and generate high returns from trading stocks. However, big uglies can meet all of the requirements for those investors who are looking for long-term value at affordable prices. Every portfolio should arguably contain a handful of lower-risk, more stable stocks. While they might not provide bumper returns, investors can generally know what to expect when they invest in big uglies.
The case for including big uglies in 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. In this way, they can help to hold down a portfolio and curb losses when other racier, overcrowded stocks get pummelled in a bear market.
However, what this kind 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, young investors with long time 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, big uglies require due diligence. Some large, stable, and old companies may be in structural decline, serving industries that are dying out and being replaced. That means that while they might 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 such as manufacturing, oil, steel, and mining are very capital intensive and, by nature, actually quite cyclical.