Scared by the big AI stock market selloff? Here are five alternative investment ideas

From companies big and small, to energy stocks and even real estate, here are some alternative options for your investment portfolio to help calm AI-selloff jitters. Photo by Seth Wenig/AP Photo/Postmedia files

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This week’s big stock-market AI sell-off scared lots of investors. Of course, it did. Many investors have been loading up on technology stocks and the artificial intelligence frenzy has taken over Wall Street, and to a lesser extent Bay Street. With all the interest, the S&P 500 index’s technology weighting is now at a hefty 35.8 per cent. This is the largest concentration ever of a single sector within the S&P 500 historically, surpassing other major sectors such as financials and health care that have previously ranged between 13 to 20 per cent.

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But if you have loaded up on technology there are going to be some painful days when the market corrects. Some stocks on Tuesday saw declines of 15 per cent or more. Investors fretted because in nearly all cases there was no “bad” news. In fact, many companies in the tech sector reported very strong earnings over the past week. It was just that expectations ran ahead of reality. Also, profit-taking can happen any time, especially as we approach year-end. It has, for nearly every investor, been a great year in the market. Why not take some money off the table and get ready to enjoy all those holiday parties about to hit your calendar?

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So, for those so inclined, let’s take a look at some alternatives to technology. We are not calling for a top in the mega-cap tech sector, but it’s always good to diversify and to know what else is out there for your investment capital.

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Energy stocks

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Last month’s takeover battle for MEG Energy Corp., and this week’s bid for NuVista Energy Ltd. could be telling: If investors do not price energy sector stocks correctly then corporate buyers will step in. Even with these corporate buyers paying a premium, they can still make lots of money by buying undervalued energy companies. For years now the energy sector has struggled. In the S&P 500, energy now stands at just 2.7 percent of the index. It is much higher on the TSX, at 15.4 percent. However, many investors we talk to just cannot stand the sector. The pain of 2020, when oil prices actually went negative, is very much present. But while investors were not paying attention, energy companies started paying down debt, paying nice dividends and buying back their stock. This has brought valuations to very reasonable levels and financial risk is lower to boot. So, for those investors rethinking their massive technology exposure, energy might be a good place to look for ideas.

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Large cap dividend stocks

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Yes, we know. A four per cent dividend stock sounds pretty dull when compared with companies such as AI darling Palantir Technologies Inc., which is still up about 150 percent this year. But in a market correction, a four per cent dividend might look a lot better than a 50 per cent stock decline elsewhere. Companies such as Enbridge Inc. (5.8 per cent yield) or Fortis Inc. (3.6 per cent yield) might see a lot more interest if the tech and other sectors decline. Investors in large-cap dividend stocks can also benefit if interest rates continue to fall, which would make their dividends even more attractive in comparison to fixed-income alternatives.

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Gold bullion and gold stocks

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Sure, the gold sector has had a giant run this year, on the back of a weak U.S. dollar, lower inflation, and the prospect of lower rates. Central bank buying (with the exception of the Bank of Canada) has also helped fuel the fire in the sector. Will the gold sector keep running? No one really knows, but currency debasement and lower rates are typically very positive for gold. Gold is also seen as good insurance against general financial calamities. Tech sector investors who are diversifying might want to take a look.