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• More analysts are recommending “defensive” shares over AI plays as macro conditions change.

• Utilities, a classic defensive sector, are going toe-to-toe with tech.

• With some questioning the AI rally, investors could benefit from non-tech growth companies, an analyst said.

Defensive recommendations have taken center stage on Wall Street as the artificial intelligence trade shows signs of being overextended and as economic conditions change.

Utility stocks — a common buy when times look tough — have gone toe-to-toe with the technology sector’s blowout performance this year. Year-to-date, the utilities and tech sectors have gained 22.08% and 25.69%, respectively.

Defensive sectors of the stock market, which can also include real estate and consumer staples, tend to be better plays when macro conditions look to be softening. As employment data has weakened in recent months, investors are growing nervous about a coming downturn.

Meanwhile, though the sector has staged a comeback this week, leading AI names have struggled to find their footing, with Nvidia facing tough questions about returns on AI investments by companies. The broader S&P Global Semiconductor Index is down 5.63% for the month.

As the AI trade takes a bit of a breather, and as data shows the economy may be cooling, more analysts are recommending investors take shelter in defensive corners of the stock market.

Bank of America said investors should avoid buying the tech dip, noting that market volatility is set to pick up over the long term. In addition to dividend-paying utilities, it also suggested investors seek real estate exposure.

Similar to BofA’s call, Morgan Stanley’s Mike Wilson last week called the AI theme “overcooked” and said investors should shift to defensive shares.

According to Brad Conger, CIO of investment firm Hirtle Callaghan, some of the S&P 500’s more “boring” companies are at the heart of the defensive theme.

“Our positioning is that there are a lot of great growth businesses that are undervalued because of both the excitement around tech and AI,” Conger told Business Insider, citing things like waste management companies.

The performance of such defensive names would rise dramatically if the US economy took a turn, he added.

“That’s what we’ve seen in the past eight weeks — as the prospect or the possibility of recession has gone from, say, 10% to 30%, then those things got a tailwind.”

Like Morgan Stanley’s Wilson, Conger believes that AI is overstretched and he warned that hardware firms like Nvidia are facing a cliff if the technology doesn’t start to show real returns on investment.

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Firms, from BlackRock to Vanguard, agree that timelines need adjusting. JPMorgan noted in a recent report that adoption trends need to move higher if the tech hopes to avoid a “metaverse outcome,” referring to the virtual reality worlds that saw huge investment a few years ago but which ultimately never ended up producing much of a return.

To be sure, most on Wall Street are still convinced by AI’s potential. Eric Diton of Wealth Alliance told BI that Nvidia’s recent drop was a case of profit-taking and not a sign of enduring weakness

“We can’t fathom what this will look like 10 years from now, but AI will become a mainstream part of everyone’s daily life,” the firm’s president said. “There’s no doubt in my mind.”

But in tune with what others had said, Diton also touted that utilities stocks as one meaningful investment to make right now. As bullish on AI as he may be, he warned that the market has become extremely concentrated in tech’s leading names, and investors need to diversify.

“Do you need to have exposure to AI and tech? Absolutely. But do you want to do it in the way the S&P 500 is?” he said. “No,you don’t want to. You don’t want to have 20% of your net worth and three stocks.”

With the Federal Reserve anticipated to cut interest rates at its meeting this week, Diton also suggested that investors pick up high-dividend paying stocks and longer-term bonds. He also shared a preference for small-caps, which can see stronger performance when borrowing costs fall.

Read the original article on Business Insider

When it comes to income investing, there are many index funds to choose from and a wide range of risks, yields, and upside potential to consider. With that in mind, here are three excellent Vanguard exchange-traded funds (ETFs) focused on dividend investing, but with three very different approaches.

Income investing isn’t all about current dividend yield

The Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) is the largest ETF of the three discussed here in terms of total fund assets. It is also the cheapest to invest in, with a rock-bottom 0.06% expense ratio.

On the other hand, with a 1.8% yield, it is also the lowest-paying dividend ETF on the list. However, it would be a mistake for investors to dismiss it simply because of its relatively low yield.

Here’s why. Instead of focusing on stocks with the highest dividend yields, the Vanguard Dividend Appreciation ETF invests in stocks with strong records of growing their dividends every year. In other words, the focus isn’t on current income — the goal is to find stocks whose income will grow significantly every year.

Top holdings include Apple, Broadcom, Microsoft, JPMorgan Chase, and ExxonMobil. All of these companies have lots of growth potential. In a nutshell, the goal isn’t to create a current income stream but rather an income stream that will grow rapidly over time.

Income and long-term upside potential

Many income investors often think of real estate investment trusts, or REITs, as boring income investments. However, the reality is that REITs offer a high level of income and significant upside potential over time. In fact, many of the leading REITs have handily beaten the S&P 500’s total returns over the past few decades.

The Vanguard Real Estate ETF (NYSEMKT: VNQ) allows investors to get exposure to a diversified portfolio of REITs in a single investment and has a low 0.13% expense ratio. The ETF currently has 155 stocks in its portfolio, with top holdings that include Prologis, American Tower, Equinix, and Welltower.

Not only do REITs have excellent total return potential, but they can also be big beneficiaries of falling interest rates. So, now could be an excellent time to add this ETF to your portfolio. The fund has a 3.7% dividend yield, and real estate could be a great way to add some diversification from traditional stock index funds.

Look beyond the U.S. for exciting income opportunities

One unique approach to generating income is to focus on opportunities outside the U.S., and dividend investors can do that with the Vanguard International High Dividend Yield ETF (NASDAQ: VYMI).

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As the name implies, this ETF tracks an index of international stocks that pay above-average dividend yields. About 45% of the fund’s holdings are based in Europe, with 34% coming from other developed countries and 21% from emerging markets. You’re probably familiar with some of the fund’s top holdings, including Nestle, Shell, Toyota, and Novartis, just to name a few.

As of this writing, the Vanguard International High Dividend Yield ETF has a 4.5% yield, and the ETF itself looks very cheap. The average stock in the index trades for just 11 times earnings and 1.4 times book value (compared with 4.7 times for the average S&P 500 stock).

Which is best for you?

While I don’t think income-seeking investors would go wrong with any (or all) of these ETFs, the best choice for you depends on your specific investment goals and income expectations. For example, an investor who still has decades to retirement might be best suited for a growth-focused ETF like the Vanguard Dividend Appreciation ETF, while a retiree who relies on their portfolio for current income might prefer the Vanguard Real Estate ETF.

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Matt Frankel has positions in Prologis and Vanguard Real Estate ETF. The Motley Fool has positions in and recommends American Tower, Apple, Equinix, JPMorgan Chase, Microsoft, Prologis, Vanguard Dividend Appreciation ETF, and Vanguard Real Estate ETF. The Motley Fool recommends Broadcom and Nestlé and recommends the following options: long January 2026 $180 calls on American Tower, long January 2026 $395 calls on Microsoft, long January 2026 $90 calls on Prologis, short January 2026 $185 calls on American Tower, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

3 Great Vanguard Dividend ETFs to Supercharge Your Income and Growth Potential was originally published by The Motley Fool

When Bill Gates became a billionaire in 1987, he was the youngest person to reach that milestone. He reached billionaire status at 23, and 12 years later became the first centibillionaire, achieving a $100 billion net worth well ahead of anyone else.

Gates and his then-wife Melinda established a charitable foundation in 2000 to enhance healthcare and reduce poverty around the world, the Bill and Melinda Gates Foundation. Over the past 25 years, Gates has donated much of his wealth to the foundation, and he plans to donate the entirety of his assets to charity throughout his lifetime.

Gates’ fellow centibillionaire Warren Buffett has also pledged donations to the Gates Foundation since 2006, but those contributions will end after his death. Buffett also served as a trustee for the foundation until 2021, and likely influenced how the trust invests its funds.

The trust’s equity portfolio is currently valued around $48 billion, but more than two-thirds of that amount, about 69%, is invested in just three stocks.

1. Microsoft (31%)

Gates donated $20 billion to his foundation in 2022, and it appears a large chunk of the donation came in the form of Microsoft (NASDAQ: MSFT) stock. Gates is still one of the largest shareholders in the company he founded, and the company’s stock still accounts for a large portion of his wealth. The trust added about 38 million shares to its portfolio in 2022, worth about $8.9 billion at the time.

The trust fund still has almost 35 million shares of the stock left in its portfolio, and the value has climbed to $14.8 billion. Holding on to those Microsoft shares has worked out well for the foundation (and Gates). The stock is up more than 60% since July of 2022, when Gates made his donation.

Microsoft’s strong performance over the last two years can be attributed to its role in the growth of generative artificial intelligence. The company increased its investment in generative AI leader OpenAI in early 2023, and it became a top cloud computing platform for AI developers as a result of its close ties with company. Microsoft’s cloud platform, Azure, saw AI customers grow nearly 60% year over year in its most recent quarter, surpassing 60,000 total.

Meanwhile, Microsoft is injecting AI capabilities into its industry leading enterprise software — 77,000 organizations use its Copilot software to improve productivity and creativity across Github, Office, and their own native applications. And the number of customers continues to grow quickly, up 60% sequentially in the most recent quarter.

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Shares of Microsoft currently trade around 32 times forward earnings estimates. That’s certainly a premium to the S&P 500, but its stock deserves a premium price. Its position as a leading cloud platform for AI developers combined with the massive enterprise software customer base to sell Copilot into gives it a long runway for growth. On top of that, its cash position and free-cash-flow generation gives it plenty of capital to deploy to take advantage of growth opportunities.

2. Berkshire Hathaway Class B shares (23%)

As mentioned, Warren Buffett is a regular donor to the Gates Foundation, and his most recent donation arrived last quarter in the form of 9.9 million Class B shares of Berkshire Hathaway (NYSE: BRK.B). Buffett uses the ability to convert super-voting Berkshire Hathaway Class A (NYSE: BRK.A) shares to Class B shares before donating in order to maintain control of the company.

Buffett’s donation pushed the trust’s position in Berkshire Hathaway to nearly 25 million shares. Those shares are worth about $11.2 billion today.

But the trust’s Berkshire position will likely shrink over the next year. Buffett’s donation stipulates that the Gates Foundation must spend every penny he donates plus an additional 5% of its net assets. Gates has pledged to increase the foundation’s spending from $6 billion in 2022 to $9 billion by 2026, and plans to spend $8.6 billion in 2024.

Berkshire Hathaway has outperformed the market in 2024, up about 26% as of this writing. Strong operating performance and investment management has resulted in far better performance than the average value stock. Around 60% of Berkshire’s value is tied to its cash and equities, while the other 40% is tied to its wholly owned businesses, including insurance operations and railroads.

With a current valuation above 1.6 times book value, the stock looks expensive. But with a delevered balance sheet for the first time in a long time, it may be worth the premium valuation because those assets could drive significantly better returns in the future.

3. Waste Management (15%)

Waste Management (NYSE: WM) is the leading waste hauler in the U.S. Not exactly the high-tech operation you might associate with Bill Gates. It is, however, the type of boring wide-moat business you’d associate with Warren Buffett.

The Gates Foundation Trust holds more than 35 million shares of Waste Management worth about $7.3 billion as of this writing. The stock has performed well in 2024, but took a step back after second-quarter numbers disappointed investors. The long-term outlook for the business remains strong, and the near term doesn’t look too bad either. Management ultimately raised its full-year guidance for EBITDA and free cash flow with its earnings results.

Waste Management benefits from its scale. It owns more landfills than its competitors and operates high-density routes (which means it can serve more businesses and households more efficiently). That position also gives it pricing power, and the free cash flow to grow via acquisition. Its most recent acquisition agreement with Stericycle is set to close in the fourth quarter.

The stock currently trades at an EV-to-EBITDA ratio of less than 17. That’s a price comparable to its closest competitors. But with its market-leading scale and ability to acquire smaller companies and potentially add value and exercise operating leverage, it should be able to outperform at this price.

Should you invest $1,000 in Microsoft right now?

Before you buy stock in Microsoft, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Microsoft wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $729,857!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 9, 2024

Adam Levy has positions in Microsoft. The Motley Fool has positions in and recommends Berkshire Hathaway and Microsoft. The Motley Fool recommends Waste Management and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Billionaire Bill Gates Has 69% of His Foundation’s $48 Billion Portfolio Invested in Just 3 Phenomenal Stocks was originally published by The Motley Fool

(Bloomberg) — The paper fortune that former President Donald Trump amassed by taking a nascent media startup public is shriveling, and a race to the exits that begins as soon as Sept. 19 could shrink it even more.

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Trump Media & Technology Group Corp., which owns the X-lookalike social media platform Truth Social, has shed nearly $6 billion in value over the past four months. Meanwhile, its largest shareholders have been unable to sell because of a lockup agreement from when the firm went public through a special-purpose acquisition company merger in March.

The stock was trading at its lowest level since then as recently as Thursday, erasing $4.1 billion in paper wealth for the Republican presidential candidate, who owns roughly 60% of the company. His stake is now worth about $2.1 billion.

“Buyer beware,” said Paul Karger, co-founder and managing partner at TwinFocus. “I’ve watched the fallout from many of these former SPACs, and it was just a race to the bottom where everyone was trying to get out at any price. And the stocks just collapsed.”

Trump isn’t alone in watching a paper empire collapse because of the lockup restrictions, which prevent insiders from selling until next week at the earliest. Andy Litinsky and Wes Moss, former contestants on Trump’s TV show The Apprentice who co-founded the company, and Patrick Orlando, whose fund, ARC Global Investments II LLC, sponsored the SPAC that merged with Trump Media, have seen more than $500 million in wealth wiped out.

Investors are bracing for a flurry of sales from Litinsky, Moss and Orlando given that none of them have roles at the company and all have been parties in a smattering of lawsuits surrounding their positions. Whether Trump or the other insiders will capitalize on the removal of the lockup as soon as the end of next week is unclear. But traders will be closely monitoring regulatory filings that would show any such sales.

As for the former president, he insists he has no plans to dump the shares.

“A lot of people think that I’ll sell my shares,” Trump said at an event on Friday. “You know, they’re worth billions of dollars, but I don’t want to sell my shares. I’m not going to sell my shares. I don’t need money. And it is great for me. It’s a great voice.”

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The stock jumped following those comments, closing Friday up 12%.

Back To X

That said, Trump has done little to inspire investors to back his company. He returned to Elon Musk’s X on Aug. 12, posting more than 100 times in the weeks that followed. Trump Media shares plunged more than 10% on Wednesday following the former president’s disappointing debate against Democrat Kamala Harris.

The stock has tumbled to $17.97 from $40.58 on July 15, just after the assassination attempt on the presidential candidate at a rally in Pennsylvania, posting losses for seven straight weeks before recovering this week. The slide makes the company look more like the meme stock skeptics have described, with an over $3 billion valuation despite second-quarter revenues of less than $1 million.

“Trump Media never traded on the basis of its underlying economics,” said Stanford University law professor Michael Klausner.

Despite Friday’s rally, investors are preparing for the selling pressure that could come from the ending of the lock-up on Trump Media insiders. But the reality is, it’s difficult for shareholders with such large stakes to quietly unload their holdings.

“There’s not a lot of room for error here,” said Karger, who co-founded TwinFocus to advise ultra-high-net-worth individuals to manage their wealth. The Securities and Exchange Commission “will be all over this to make sure every T is crossed and I is dotted.”

This is particularly true for Trump, who holds nearly 115 million shares. If he did decide to sell, it would more than double the amount of stock that’s freely traded in the market, according to Jack Ablin, chief investment officer at Cresset Capital.

“It’s a publicly traded stock, but selling 60% of the company would require a disclosure and have to be done on a regularly scheduled program,” Ablin said in an interview. “It’s going to take a while. It’s not something he could simply hit the sell button on.”

SPAC Outlier

Trump Media’s route to the public market was an outlier even for the SPAC boom, which brought hundreds of smaller firms onto exchanges in deals with less regulatory scrutiny. Digital World Acquisition Corp., the SPAC that was founded and backed by Orlando, settled fraud charges with the SEC last year. Then, the regulator sued Orlando this summer, accusing him of misleading investors.

Those cases are separate from the series of lawsuits related to Trump, the stakes of Orlando’s ARC and Litinsky’s and Moss’s United Atlantic Ventures in the company, and the rules surrounding the restrictions of sales.

Earlier this year, Litinsky and Moss sued Trump over an attempt to dilute their stakes and pushing back from the lockup, which is common in SPAC deals. The duo were separately sued by Trump, who accused them of botching the setup for Trump Media prior to the SPAC merger and suggested that they shouldn’t get any stock in the company.

Meanwhile, Orlando has launched a suit arguing that he is entitled to nearly 2.5 million more shares than he was allotted because of a stock conversion ratio he maintains was incorrect.

Ultimately, the fate of Trump Media’s shares may be tied to the results of the November election, which at the moment appears to be neck-and-neck. Polling averages from Real Clear Politics show Harris with 48.5% support, giving her a 1.5 point lead over Trump, who’s at 47%.

“What happens to the value of the stock if Donald Trump loses his bid to be president?” Ablin said. “There’s a lot of risk with this thing. It’s really trading pretty much off of Donald Trump’s name — the ticker symbol is his initials for goodness sake.”

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