History shows that there have been prolonged periods during which growth has outperformed value.
However, we have not witnessed such a prolonged “growth-driven”, at least in the past 50 years or more.
Credit Suisse believes that two key reasons have led to the prolonged period of growth outperforming value:
- a growth-stock-friendly discount rate environment and
- a typical profit cycle “disrupted” by both macro and micro influences
As real bond yields remain stubbornly low, growth stocks have become the go-to theme for most investors, not to mention the growing scarcity of premium top-quality stocks.
To help investors better identify growth stocks, we look at eight growth themes that Credit Suisse highlights as key areas of growth in the next decade.
1. Data is the new oil
The Big Data theme is driven by an exponential rise in the amount of data created and the need to store, transmit and analyse it.
According to IBM, 90% of all data created to date was created in the past three years.
According to International Data Corporation, the number of connected devices will increase to 36 billion by 2021, up from 15 billion in 2016.
As the number of connected devices increases, we will see an inevitable surge in the data creation.
On top of growth in data, there will also be a greater need for data security (i.e. cybersecurity) as cloud-stored data becomes the norm.
Recommendation: SAP, Vmware, Lam Research, Symantec
2. Improving productivity and alleviating ageing problem with automation
The investment case for Automation as a growth theme is driven by rising robot penetration rates. China is currently the biggest buyer of robots in the world.
However, robot penetration remains very low compared to industrial nations like Japan and Germany (~80%).
The automation theme also seems to be moving into a newer phase based on industrial connectivity and analytics.
Industry 4.0 is seeing Digitalisation and the Industrial Internet of Things (IIoT) becoming more commonplace in the manufacturing industry.
Overall, the industry is spending ~4x current revenues generated, which shows that the utilisation of automation will pick up exponentially.
Recommendation: SMC, Inovance, IMI, Aveva
3. Ageing demographics
As ageing populations “plague” the developed world, we’ll see a structural albeit slower-paced shift in the global economy.
Projections from the UN suggest that the number of people in the world aged at least 60 will increase to 1.4 billion in 2030 from 900 million in 2015.
Credit Suisse believes that markets that stand to benefit from this (developed and emerging market) theme include financial services, the healthcare supply chain, HPC stocks and the travel & leisure sector.
Recommendation: Ping An, Sonova, Straumann, Bumrungrad Hospital
4. Healthy living
Consumer trends are changing as people are gravitating towards healthier lifestyles.
This appears to be a greater awareness from an increasing proportion of the world’s population being overweight or obese (~2 billion, according to the WHO).
Health food producers, fitness & activity exposed companies, as well as sport apparel companies, should benefit from this shift in consumption patterns and increased activity levels.
Recommendation: Inner Mongolia Yili, Shenzhou International