Did you know that you will probably make more money if you invest in an average stock in a strong industry than a great stock in a poor industry?
That’s what studies show, according to the Zacks Investment Research article “5 Stocks to Buy in Today’s Best Industries.”
In fact, about 50 percent of the rise or fall of a company’s stock is based on what industry the company is in, according to an adage that many investment experts believe has a lot of credibility.
Knowing that a company’s performance and stock price is so dependent on whether the industry it’s in is projected to flourish or stumble can save would-be investors a lot of time and money. How many companies do you want to study before making an investment decision?
Zacks keeps tabs on 265 industries. If you know which of these industries are projected to fare very well in 2016, you can study the companies in those industries, or the industries themselves, rather than dozens or hundreds of companies.
Fortunately, there are many investment experts who study dozens of industries. This article is based on the advice of a few of those experts, including experts who write for Forbes magazine, CNBC, Fidelity Investments, and GoBankingRates.com.
The biggest surprise is that several experts regard the energy industry as an excellent industry to invest in during 2016. The energy industry has struggled recently. Oil prices are the lowest they’ve been since the 1990s, oil supplies are shrinking, the number of oil exploration projects is declining, and 68 large natural gas and oil projects are in limbo because of fears that it’s too difficult to make a decent profit, according to “Why Oil Stocks Will Be the Best Investment in 2016,” a GoBankingRates.com article that was republished in The Huffington Post.
All of this bad news means that the prices of oil stocks are low — and that’s part of the reason that many experts’ choose oil as the best industry to invest in during 2016. Another part of the reason is that many experts believe the prices of oil stocks could soar in 2016 because of the laws of supply and demand — supply is declining while demand is expected to increase during the second half of 2016.
“The declining supply of oil is likely to cause an increase in the price of oil — and subsequently oil stocks — this year,” GoBankingRates.com reports.
CNBC and Fidelity are also high on the energy industry. The Fidelity report “2016 outlook: energy” says there are investment opportunities in oil exploration & production companies that have been seeking shale oil in the Bakken region in North Dakota and the Eagle Ford and Permian areas in Texas. These companies have had a lot of success extracting natural gas and oil via fracking.
The CNBC report “Five hot sectors for 2016” lists energy as one of the five best industries for investors in 2016. CNBC contributor Kenny Polcari, who directs O’Neil Securities’ New York Stock Exchange floor operations, wrote that the energy industry is the only one of the five that is a “hot button” choice because of the industry’s recent struggles, but he predicts that the market will reward people who invested in companies that have been “absolutely slaughtered” in the recent past, but have remained intact in an industry where lots of companies have folded.
Polcari’s other choices are:
* The financial industry.
* The tech industry.
* Industrials.
* Solar energy.
Many Industries Could Be Very Profitable
Fidelity is high on the energy industry, but its “2016 sector outlook” report cites auto part manufacturing, biotechnology, cell tower operators, e-commerce, and office property real estate investment trusts when it discusses the industries that offer excellent opportunities for investors.
The Fidelity report includes specific reports for numerous industries. The health care industry report says that investing in biotechnology companies in 2016 is a good idea because there is a “tremendous innovation wave” in the industry.
Looking for companies that are launching new drugs is advised. The medical devices and health care information technology industries are also projected to be on the verge of tremendous innovations in 2016.
The Fidelity report on telecommunication services says that investing in cell tower operators is an opportunity to make a lot of money because “demand for larger amounts of mobile data continues unabated” and, thus, companies that transmit the data via cell towers are likely to continue to grow.
Similarly, the Fidelity report on information technology notes that e-commerce and Internet services companies are likely to continue to grow, partly because consumer demand for mobile communications and social media is booming.
If you want to make a lot of money by investing in stocks, knowing experts’ projections for the most profitable industries in 2016 could be beneficial. The Forbes magazine article “The Most Profitable Industries In 2016” lists the 10 most profitable industries as:
1. Health Technology.
2. Technology Services.
3. Finance.
4. Electronic Technology.
5. Consumer Non-Durables.
6. Consumer Services.
7. Utilities.
8. Transportation.
9. Communications.
10. Producer Manufacturing.
Investment opportunities during the second half of 2016 could change considerably because of macroeconomic factors such as low energy prices, higher interest rates, and slower growth in China than previous years.
As you consider where to invest your money in the next few months you should “follow the money,” John Merrill of Tanglewood Wealth Management told CNBC in an article entitled “Analysts’ top sectors and stock picks for 2016.”
Merrill said investing in the defense industry is an excellent idea because a substantial amount of money is being spent on this industry.
“It’s not just about the homegrown terrorism and the type of defense spending that that creates, but also defense spending around the world, building navies, building armies, technology that goes with that,” he said.
