Following the lockdown due to Covid-19 in much of the first half of 2020, the current year will be all about damage control for most companies out there. Many bankruptcies are expected. In fact, major some household names such as Hertz, JC Penney or Neiman Marcus have already fallen over during the past month. But for the companies that survive and come out of the crisis stronger, there is plenty of opportunity and market share to take.
So where will the growth be?
We took a deep dive into our data and looked at the revenue growth rates analysts project for the companies they cover in 2021. We then ran the numbers to find the median revenue growth rate in each industry. The results are quite intriguing, as we did not expect to see the metals & mining industry come out on top. Contrary to the automotive industry, which is a clear case of a bounce back, metals & mining actually grew by 11% in 2019 and is expected to grow by 8% in 2020.
The laggards
Wall Street analysts expect next year to be a particularly dynamic one following the slump in 2020. So as much as it makes sense to look for opportunities in the most dynamic industries, we find it important to know where to tread carefully. It turns out that the bottom five are mostly the steady and stable industry groups that did not see too much of a slump in the first place during the lockdown, such as telecommunications or food and beverage. This means they are not expected to experience much of a bounce-back effect.
What about earnings?
Not unexpectedly, the leisure industry is expected to experience the highest earnings growth rate in 2021 with median earnings per share growth of 98%. This comes of course on the back of a horrible year 2020 in which growth is expected to be down by 76% for the median company in the industry. Similarly, the earnings in the automotive industry are expected to grow very strongly in the coming year. While we believe that people will certainly travel again, we have our doubts about the automotive industry because it is subject to strong structural shifts, such as autonomous driving and the move away from carbon-based fuels.
It is during times like this – with extensive shifts in market dynamics – that great opportunities arise. But investors also need to tread carefully making sure to avoid having “bad apples” in their portfolios.
The Ziggma Company Performance Scores can contribute a great deal to mitigate such an outcome, as they integrate a very robust measure for companies’ financial health. Our CP sub-score for financial health reflects on a daily basis the solidity of a company’s footing in terms of leverage, liquidity and debt service capacity (the ability to pay interest and repay debt upon maturity).
Stay tuned for more blog articles featuring industry analyses on topics, such as profitability or financial health.
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