Posted by: donmihaihai | October 30, 2011

5 sectors to watch in the decade ahead.

The Sunday Times has just peek into DBS latest report on what they deemed to be the growth sectors of the coming decade. Which mean if we buy stocks in these sectors, we are likely to perform well going forward.

Those sectors are
1) Housing
2) Energy
3) Healthcare
4) Agri business
5) Travel and tourism

Isn’t it good? Someone do the hard works for me and all I need to do is follow them, perhaps not everything but add some own thinking and magically I have the sectors of the next decade. But what if it doesn’t work out? Neither is they liable nor will still be here. It is just a report. And at current environment, not many will put their head on the chopping board and put forward sectors that is disliked by almost everyone at the moment.

So let’s play a game. I will try to come out with 5 sectors that are either hated/dislike, ignored or indifferent. And these will be my favorite sectors.

1) Technology/ manufacturing
They were the favorite at beginning of last decade but no one talk about them anymore. Except those that are related to the new social network. There are Venture Corp, Chip tester, HDD related, etc. Their outlook are dammed poor and is there any stock in this sector that trade above 2X NBV? I don’t know but I do know lot trading at below NBV. All they need is to be in an environment where some new growth, etc and it can easily become the sector of next decade. If growth is there, they will have additional tailwind – valuation expansion. Chip tester anyone?

2) Transportation
SIA, NOL, Comfortdelgro, etc but excluding anything that related to offshore sector. NOL is abit tricky as they went through a big bloom few years back. Anything related to bulk shipping might be a good bet of the decade due to current overcapacities in the industry.

Why is transportation? 2 simple reasons. 1st bet against energy either from reduction of energy price or energy price does not increase as fast as it use to be as compare to player able to pass the increase to customer. 2nd is over capacities reduce asset price which will benefit these players.

Betting on transportation is betting against favorite sector of DBS.

3) Retail and F&B outlets.
Retail properties have a great run for over 5 years. Thanks to REIT, Shopping Centre is 2011 is a big different from 2001. More will be built. Betting on Retail and F&B is a bet against retail properties and REIT. This is a bet against past and current favorite. A cyclical industry is still a cyclical industry no matter how it is packaged or how good it is performing now.

4) Consumer brand.
This is a bet against soft commodities price. High commodities price has cause lot of troubles for these group. Despite this better companies are still able to perform well in last 5 years or so. So guess what will happen if they are not pressure by raw materials anymore?

5) Finance / bank
There is a limitation of sector locally and since it is not part of their favorite sectors, why not companies in finance and banking. And the best thing is their stocks are not at particular expensive level.

It is really hard to come out with sectors locally especially when majority of them are currently undergoing some kind of tailwind or something like that. Majority of listed companies are in cyclical industries which is capital intensive. When times are good, everyone enjoy. New players come out of nowhere. What will happen next? Over capacities, intense competition, depressed profitability.

Where are they right now? I don’t know. In stock market, beside profitability, price plays a part too. But if I will to base on profitability alone, maybe the local Enterprise 50 and IPO might help.


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