With a huge number of stocks to choose from in stock markets around the world, one of the most difficult tasks investors face is deciding where to begin looking for stock picks. If you find yourself in such a situation, you may want to consider a top-down approach. This approach involves searching for stocks that operate in an industry with strong tailwinds.
A fundamentally-sound company that operates in a fast-growing industry can ride on macroeconomic tailwinds and compound returns for investors. In this article, I want to share two fast-growing industries that investors can look to in 2019.
DNA is the genetic material that makes up the characteristics of living organisms. Our DNA determines simple characteristics such as eye colour, skin tone, and gender etc. It also determines more important characteristics, such as whether we have a propensity for certain kinds of diseases including cancer, hemophilia, Parkinson’s disease and more. With the importance of DNA now well-known, DNA sequencing is fast-becoming one of the key areas in medical research.
Technological advancements, growth in the number of collaborations and partnerships, and increase in genomic mapping programs have each contributed to the growing DNA sequencing market.
Back in 2000, it took 13 years and US$2.7 billion to sequence just one human genome. Amazingly, with technological advancements, human DNA sequencing can now be done for around US$1000 and be achieved in a matter of days or even hours. The improvements in cost- and time-effectiveness of DNA sequencing have made the technology more accessible to researchers and increased the use of sequencing in research and commercial applications.
According to a report published by Allied Market Research, the global DNA sequencing market is expected to grow at a compound annual growth rate of 19.6% from 2017 to 2023, with the total market expected to reach US$18.3 billion by 2023 from just US$5.2 billion in 2016.
Companies that provide the machines for DNA sequencings such as the US-listed duo of Illumina, Inc and Pacific Biosciences could potentially benefit from the boom. Illumina is in the process of acquiring Pacific Biosciences, with the deal expected to close in mid-2019.
Electric cars are taking the world by storm. German car manufacturer, Volkswagen, announced last month that it plans to spend US$50 billion on building electric and autonomous cars. It also announced plans to stop the production of new generations of petrol and diesel powered cars from 2026. US automobile giant General Motors is also investing in fully electronic cars, and has already released an affordable long-range model – the Chevrolet Bolt – to compete with Elon Musk’s Tesla.
In China, the electric car market is booming too, with consumers on track to purchase 1 million electric cars by the end of this year. The China government has fueled the electric car craze, pouring money into the industry through tax incentives and subsidies, and building charging infrastructure across the country.
2017 was the first time global sales of new electric vehicles surpassed one million units. A recent report by Mckinsey suggested that global electric vehicle sales could very well quadruple to 4.5 million units by as early as 2020, representing 5% of the global light vehicle market. With electric vehicles still representing a small portion of total vehicle sales, the market for the electric vehicle industry could continue to grow for many years.
The Foolish bottom line
A top-down approach can be a useful way to search for stocks. Industry tailwinds could compound the returns of well-managed companies. The electric car and DNA sequencing industry are primed for multi-year booms. Investors who capitalise on the opportunities might very well be rewarded in time.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia doesn’t own shares in any companies mentioned.