Investors today confront a world of modest economic growth and higher equity valuations. Profit margins may be peaking as companies begin to deploy capital to drive future expansion. A rising tide may no longer lift all boats. Investors must become more selective, looking for companies that don’t require scorching economic growth to prosper, and that can sidestep—or capitalize on—the increasingly common need to spend more on hiring and capital equipment to boost sales.
Three types of companies may benefit:
- Organic revenue generators can increase sales without spending a lot on hiring or capital equipment. This category includes companies in the media world, where 10 companies control 95% of paid global content, and the e-commerce world, where online sales are growing rapidly.1
- Efficiency vendors can sell efficiencies to other firms. This includes companies involved in big data management, where annual global Internet traffic may soon surpass a zettabyte of data. It also includes “justified middlemen,” intermediaries who can lower transaction costs by sourcing and distributing high volumes of products to a widely dispersed customer base.
- Innovators offer inventions that take costs out of a process or that have built a better mousetrap. Robotics companies may profit from the rapidly increasing stock of industrial robots, and companies involved in hydrofracking may profit from the 30,000 miles of gas pipeline that may soon be built in the U.S and Canada.
Read the full ‘Bull Market Isn’t Over. It’s Changing.’ Infographic to find out more.
1 Source: OppenheimerFunds Research↩
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