Aswath Damodaran, professor at New York University, publishes, as he does every year, updated data on the financial markets, which are used, among other things, in investment funds and his own analyses. The data is compiled on the basis of the aggregate financial performance of companies and sectors, individual ratings companies or analyst forecasts. All the data he publishes is available for free on his website. What could we learn from the data and which sectors seem to have the greatest potential?
Who is Aswath Damodaran?
Aswath Damodaran teaches stock valuation and business risk at New York University. He previously worked as a financial analyst at investment banks. He has a PhD in finance. He has authored several books and articles on equity valuation and risk management. His knowledge and experience in the field are widely recognised, making his opinions highly valued in the financial world.
Damodaran's recent data update can be particularly valuable for investors, given the recent changes in financial markets. With the availability of processed data, we can more accurately analyse and understand the markets in which we invest.
Which sectors will grow according to analysts?
We have learned that cumulative analyst forecasts for all US companies (excluding the financial sector) put the value of average annual revenue growth at 17.38% and earnings growth for the next five years at 14.06% per annum.
According to analysts, the car and truck manufacturers sector might see the biggest revenue increases. The average annual expected revenue growth for the next two years is as high as 278%, with an average profit growth of 17.37% per year. The forecast may be affected by the current relatively low level of sales associated with the economic slowdown. The Consumer Discretionary Select Sector SPDR Fund (XLY), which gives exposure to retail or car manufacturers, among others, seems possible to benefit.
Source: Conotoxia MT5, XLY, Daily
What may seem interesting is that in second place in terms of expected revenue growth rate of 33.6% per year is the hotel and gaming industry. Its earnings are expected to grow by 21.7% a year for the next five years. For this reason, the Roundhill Sports Betting & iGaming ETF (BETZ), which gives exposure to established gambling companies and the booming internet gambling industry, seems attractive.
Source: Conotoxia MT5, BETZ, Daily
In terms of profit growth, the most attractive - no surprise - is the Internet software sector. The annual earnings growth expected by analysts for the next 5 years is as high as 96%. Average earnings growth for the next 2 years is expected to be 10.3% per annum. It might be possible that the Nasdaq index of US technology companies (US100) could gain from it.
Source: Conotoxia MT5, US100, Daily
In second place in terms of earnings growth, according to analysts' expectations, would be the renewables sector, whose average earnings growth could be 61%, with revenue growth of 32%. The iShares Global Clean Energy ETF (GlobalClean) appears to have the potential to gain.
Source: Conotoxia MT5. GlobalClean, Daily
Which industries are investing most in the future?
On average, US companies (excluding the financial sector) spend only 3.6% of their revenues on research and development. The biotechnology companies sector spends the largest proportion of its revenues on new investments. Here, their expenditure accounts for as much as 39% of sales volume. This appears to be directly related to the business characteristics of this type of company. Unfortunately, the size of investments does not seem to translate into their profitability so far. The average return on equity of this type of company was just 0.6%. It appears that the iShares Biotechnology ETF (IBB) listing may be affected by this.
Source: Conotoxia MT5, BBI, Daily
In second place in terms of investment is the previously mentioned Internet software company sector. Research and development expenditure accounts for 19.2% of this sector's revenue. In last place on the podium is the semiconductor company sector. The ratio for this sector is 18.4%, while the average profitability of companies in this sector is 22.7%.
Grzegorz Dróżdż, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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