It can be a great idea to invest in companies that make boring, yet needed products. But don’t just take my word for it. The great investor, Peter Lynch, once wrote: “A company that does boring things is almost as good as a company that has a boring name, and both together is terrific.”
One type of business activity that fits the description of ‘boring’ would be manufacturing rubber gloves.
And true to Peter Lynch’s form, rubber glove manufacturers that are listed in Singapore as well as Malaysia have all been big winners over the past few years. Some examples include Top Glove (SGX: BVA)(KLSE: 7113.KL), Riverstone Holdings Limited (SGX: AP4), Kossan Rubber Industries Berhad (KLSE: 7153.KL) and Hartalega Holdings Berhad (KLSE: 5168.KL).
Source: S&P Global Market Intelligence
The main reason for the strong stock market performances they have delivered is simple: The companies have produced consistent growth in revenue and profitability. But that is then and this is now. Can their growth continue in the future?
It’s hard to tell, but one key determinant would be the global demand for rubber gloves. Top Glove, the biggest rubber gloves producer in the world, thinks that the global gloves market should continue to grow at 6% to 8% per year. Here are the five main drivers that would sustain the growth in rubber gloves demand globally that Top Glove shared in its latest investor presentation:
Source: Top Glove 23 March 2017 investor presentation
Nevertheless, investors should remember that although the rubber gloves industry is expected to continue to grow, there is no guarantee that individual companies operating in the space can grow.
In fact, it’s reasonable to expect some rubber glove manufacturers’ businesses to outperform and some to lag.
Thus, for anyone who’s interested in investing in rubber glove manufacturers, it is important to conduct research on each company before making any investment decision. A rising tide does not always lift every boat.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Riverstone Holdings. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.