What is Big Uglies
Big uglies is slang for older companies in hard industries such as manufacturing, oil, steel and mining. They have been unpopular with investors because of their boring stability, which makes them useful during volatile markets.
BREAKING DOWN Big Uglies
Big uglies traditionally referred to stocks in gritty industries associated with manufacturing and infrastructure. They are often cheap and affordable for investors, but correspondingly difficult to sell because their growth rate and return is small and steady. As technology has advanced, big uglies no longer refers exclusively to stocks in manufacturing and materials industries. Instead, the phrase can refer to stocks in any unfashionable and reliable industry in any sector. In technology, hardware makers and connectivity stocks are considered old-fashioned, and therefore big uglies, as apps and security companies are pushing the boundaries. Big uglies in the finance industry are stable, large commercial and retail banks. Most utilities are considered big uglies, as are traditional consumer products. Investors who want high returns or are investing for short-term growth are not interested in big uglies because they simply don't experience enough quarterly growth because the demand for their products and services has leveled off over time.
Advantages of ‘Big Uglies’
Although the name brings negative connotations, big uglies can be important parts of an investor's balanced portfolio. Big uglies tend to experience slow but steady long-term growth, earnings and dividends, and they are usually household names with fantastic brand recognition. Investors who want to time the market and get high returns from trading stocks tend to stay away from big uglies, but investors looking for long-term value at affordable, even bargain, prices find big uglies to be attractive. They have lower price-to-earnings ratios than other stocks, which guarantees value. They are steady in volatile markets and tend to be recession-proof, which means that they can hold down a portfolio and prevent losses in a churning market by moving the opposite way other stocks do during a down market.
The companies themselves tend to be low-risk, along with the stocks, and are established companies with established market share in established industries. They are also more likely to be multinational companies, which diversifies risk, as a downturn in one market country can be offset by economic conditions in other market countries, and problematic manufacturing conditions in one plant can be offset by normal manufacturing conditions in another. While not sexy, these stocks are safe havens when markets are volatile. As usual, however, investors should perform due diligence on any stocks they buy, including big uglies, because these stocks may provide too little risk to grow an investor's portfolio.