Digging for Growth
In a world where rates have risen and stock prices have fallen — and the narrative about growth concerns shows no signs of stopping — investors are wondering if market growth has also gone out of style.
Style investing does have its uses, such as categorizing the stock universe into growth and value buckets, which makes it seemingly easier for us to make choices. But it also ignores the smaller groups of opportunities inside the “out of style” growth group.
So where do investors still find growth in an environment where growth stocks are facing pressure? Here are three themes that I think can produce growth over the next 2-5 years, and are worth taking a look at while they’re trading at lower levels in a bumpy market.
Tech is a Classic Beauty
Yes, tech has been hurt this year by rising rates. Yes, more rate hikes could pressure tech and high growth stocks further. But that doesn’t mean tech is the enemy. Tech is the future of the global economy. Nothing operates without technology today, so it’s short-sighted to paint the sector with a broad brush and suggest that we not invest in it.
Tech is classic. There are three groups where I see the most opportunity when looking at recent market drawdowns and my expectation of future market growth.
Cloud software. I don’t think I need to convince anyone that the way we work will never go back to the way it was before. Companies will need to invest in software and computing solutions that can keep up with the digital economy. The cloud revolution is well underway and the market has far more growth potential, in my view.
Cybersecurity. Along with all of the digitization of finance, information storage, and remote work, cyber security is more important than ever. The speed with which cybersecurity software needs to adapt and protect integral parts of our global economy is only growing.
Disruptors of the current financial system. This includes fintech companies that provide consumers the independence and power to transact, invest, and manage their finances in a way that aligns better with today’s digital economy. I would also include the crypto industry in this space as a material disruptor of established financial systems. Our habits and values have changed as consumers, demographics have shifted, and so I expect growth in this space to pick-up in coming years
Green is My Favorite Color
High oil prices have dominated the energy conversation of late, but I view this as a shorter-term force driven by supply/demand disruptions that will balance out over time.
The theme that’s more interesting for investors is clean energy and electric vehicles (EVs). A broad ETF representing the autonomous and electric vehicle space has experienced a pullback this year, but the overarching theme remains intact.
As automakers move toward producing more EVs and consumers adopt the trend, there is growth to be had here — it just won’t happen overnight. Energy transitions are gradual and require infrastructure and iterations. But the current price action in this space offers an attractive opportunity for entry.
Last, but certainly not least, healthcare is a space that cannot be overlooked. It also cannot be separated from technology. The innovations in healthcare as a result of the Covid-19 pandemic have been far-reaching and redefining for the industry. Healthcare can traditionally be thought of as a defensive space, but industry groups like biotech, pharmaceuticals, and life sciences can be growth engines under the healthcare-hood.
Healthcare and wellness are not only an integral part of the global economy, but are integral parts of our lives as consumers. Health and wellness never goes out of style.
Eye on the Prize
I find this market just as challenging as anyone, but I also recognize that there are always things to buy if we can keep our eyes on the 2-5 year prize. When everything seems very short-term focused, step back and find a long-term opportunity. Then wait.
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