How to find investment opportunities amid bear markets

Moomoo Learn SG コラムを発表しました · 2022/06/20 03:13

Source: THE WALL STREET JOURNAL

Generally speaking, good stocks include but are not limited to three types.
[1] Growth companies in fast-growing industries
[2] Cash cows in steady industries
[3] Highly prosperous companies in cyclical industries

Let's talk about them respectively.

1. Growth companies in fast-growing industries

The first thing to look at when picking stocks is the industry. Therefore, we first need to find high-growth industries with a relatively low market penetration rate, broad room for development, and a fast growth rate.

Top-quality stocks in high-growth industries are generally the leading companies. These companies grow faster in revenue than the industry and have a considerable market share and great earnings prospects even if they are not necessarily profitable now.

For example, in the new energy vehicle industry and the power battery industry, there are companies that have grown from small companies to global giants, such as $テスラ (TSLA.US)$ and the lithium battery leader $Contemporary Amperex Technology (300750.SZ)$ .

2. Cash cows in steady industries

Most fast-growing industries enter a mature stage when the penetration rate rises to a high level, for example, 70% or even higher, and the industry turns to a stable growth stage where the industry growth rate may stay roughly the same as the GDP growth rate.

There are good companies in such industries as well. Referred to as cash cows, these companies usually have relatively small capital expenditures, steady cash flow, high-profit margins, and high return on equity.

For example, $マイクロソフト (MSFT.US)$ is experiencing slower growth as the computer industry enters maturity. Nonetheless, it still has enough profit and cash flow to tap into the cloud service business to restart growth. Take $アップル (AAPL.US)$ as another example. The cell phone industry is also entering maturity, and Apple has limited growth potential. However, as a cash cow, it still retains the possibility of entering the new energy car and VR industry.

3. Highly prosperous companies in cyclical industries

Cyclical stocks are usually not good companies in the traditional sense because their earnings are not stable enough, and they're not easy to see consecutive years of share price increases.

Leading companies in these industries are usually characterized by their massive scale and advanced production technology. Thus, they enjoy a great cost advantage that enables them to make no or fewer losses during an industry downturn, while making the most profits during an industry upturn.

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