Equity Research: If you had the choice, what industry would you cover and why?

Are some industries better than others to cover from an ER standpoint?

Are some duds (and why)?

What are the key ingredients to a successful ER career as far as coverage goes?

Should you aim for more obscure spaces with fewer analysts or are there fewer analysts covering these industries for a reason?

How about media? airlines? retail?

Comments (112)

Aug 3, 2010

industrials is interesting as you learn a shitload as it so connetcted to international trade, GDP, and different economics within the world.

on the other hand the most interesting from my experience will be luxury goods, consumer durables.

Aug 3, 2010

Biotech. Lets face it, consumer goods, industrials, etc are all things which most everyone knows something about. Biotech is stuff people have no clue on. I don't know, projecting the number of coach purses sold or seeing if the cure for cancer will make it past stage 2 clinical trials? Which do you think requires more specialized knowledge?

AVII. It is a dog, but it is my baby. The company is on the DoD payroll. They have some dengue virus vaccination and their stock spiked when the avian flu was big because they were working on a vaccination. Needless to say the company and its products are incredibly complicated. I have followed them for years and outside of memorizing what they do I have no clue the science behind it. Compare that with my knowledge of Nike or Caterpillar, which is way better then AVII Biopharma.

Aug 3, 2010

dont listen to that. You wanna do ER? try to get into a group that teaches you how the world works. Biotech is not one of those...

dont get me wrong biotech is amazing. If you plan staying in ER or have some personal interest in that space, go for it. Maybe only related to your question which is the most interesting ER field, it is even the right answer. (full of chemicla enginering phd and Mds)

I am currently interning in ER therefore you as a FT might know way more than I do but it is my honest impression that there are only few jobs where you learn as much in a very short period of time as in ER.

Furtheremore only few jobs where you learn so much that is useful for no matter what you want to do later on.

I would therefore, as a starting point, recommend something economic-related to really understand that industry i.e. what drives demand and supply, cost structure, outlook, etc. etc.
Its like getting paid for learning...

Aug 3, 2010

You'll learn a lot about any industry if you go into equity research. I'd pick one that you have a personal interest in. Industrials, consumer, luxury goods = boring. You're never going to be able to make a big call on something like GE, Walmart or P&G. It just won't happen. There's less room to make a name for yourself in these industries.

Technology, biotech (though you may need a PhD), and alternative energy are much more interesting. There are plenty of big name companies (Apple, RIM, Intel, Microsoft, Google, Texas Instruments to name a few) with a variety of opinions on each from sell-side analysts. It's in these industries that you can make a name for yourself if you make the correct call. I know Piper Jaffray gets a lot of shit on this board but the go-to analyst for Apple is at Piper. So you don't necessarily have to be at one of the BBs to make a name for yourself.

Last piece of advice. You don't necessarily want to stray to industries with fewer analysts unless you think that industry has a bright outlook in the next 1-3 years. Part of your compensation as a senior analyst covering an industry is tied to trading commissions. If you have thinly traded stocks under your coverage universe (e.g., small/micro-cap), then chances are you aren't going to get paid very well from your clients. You better hope there's a lot of banking activity going on if that's the case.

Moral of the story is pick something that interests you. If you want a stable industry and don't mind being bored to death, then industrials and consumer might be for you. If you want to learn about leading edge technology or shit that's going to cure cancer (or any other disease for tha matter), and ultimately deciper the winners/losers in those respective sectors, go for tech, biotech, alternative energy, etc.

Hope that helps. And for the record, I cover a sector within technology so I may be a bit biased.

Aug 3, 2010

What about financials? What makes a good financials analyst?

Aug 4, 2010

I'll echo the comments about picking the industry you have the most interest in. When you are working 12+ hours a day, sometimes even weekends, you will want to make sure you are doing on companies that you have a desire to learn about. If you are pretty junior you will have options to switch to different areas / industries, but it seems like the majority tend to go to similar jobs within their industry whether it be corporate or even hedge funds, the industry focus remains just because you become such an expert in that given field.

Obviously for better job protection it's best to go into sectors that are growing, need value from equity research and have very high barriers to entry / specialized, but at the end of the day going with your passion will give you a better competitive advantage than struggling to study an industry that bores you and won't keep your attention to last past your lunch break...

Good luck!

Aug 4, 2010

I've done ER in biotech...fascinating stuff. I keep a close watch on all the stocks I've followed before simply because they're fun to follow (IMO).

Go with your natural interest, and see where that leads you.

Aug 4, 2010

I work in ER and highly recommend listening to those who tell you to follow your heart and choose a sector that interests you.

One of the best aspects about Equity Research is having the ability to become an expert in an industry that really interests you. Some of the sectors I considered were Internet, Telecommunications, Video Games, Automobiles, Semiconductor, Hotels/Casinos, and Software.

There's way worse jobs in the world than being an Analyst that is paid to think about beer companies all day long.

Yet to me, sitting in a cube and thinking about Insurance all day is just about my biggest nightmare. I'd hate to think about off-balance sheet arrangements and death counts from natural disasters. But some people just love all that financial modeling and the ability to really crank on numbers. I love thinking about technology and trying to forecast growth rates. Those growth rates have so much impact on our models. There is so much competition and so much change in the industry. And I love being on top of all that change and watching each company's strategy play out on their respective Income Statements.

I truly believe that in order to be a AAA+ worker, you need to be in a job that interests you. So anyway, think about what interests you, follow that, and IMO success will follow you.

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Nov 20, 2011
gamenumbers:

I work in ER and highly recommend listening to those who tell you to follow your heart and choose a sector that interests you.

One of the best aspects about Equity Research is having the ability to become an expert in an industry that really interests you. Some of the sectors I considered were Internet, Telecommunications, Video Games, Automobiles, Semiconductor, Hotels/Casinos, and Software.

There's way worse jobs in the world than being an Analyst that is paid to think about beer companies all day long.

Yet to me, sitting in a cube and thinking about Insurance all day is just about my biggest nightmare. I'd hate to think about off-balance sheet arrangements and death counts from natural disasters. But some people just love all that financial modeling and the ability to really crank on numbers. I love thinking about technology and trying to forecast growth rates. Those growth rates have so much impact on our models. There is so much competition and so much change in the industry. And I love being on top of all that change and watching each company's strategy play out on their respective Income Statements.

I truly believe that in order to be a AAA+ worker, you need to be in a job that interests you. So anyway, think about what interests you, follow that, and IMO success will follow you.

I appreciate this advice. I currently work in marketing but was just offered a TMT ER entry-level position at a prominent MM investment bank. Given that I spend most of my day on Gizmodo and Engadget as it is, this seems like it'll be lots of fun.

a_pad

Aug 4, 2010

Thanks everyone for the insightful comments.
One last thought - I get that it's important to go with your interest when choosing an industry, but what if that industry is unpopular with the buy-side (i'm thinking airlines or media)? What if your comp is tied to how many shares of your company get traded at your company by the buy-side? Does that change the equation or do you still say f*ck it I'll cover what I love.

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Oct 20, 2011

No love for Energy and Mining?

Oct 22, 2011

That was a pretty epic bump. Might as well answer the OP's last question though.

If your comp is tied to trading and the sector you want to cover is and will be out of favor for as long as you work in ER, you might want to have a backup plan. On the other hand, if there are some good quality names that will perform favorably despite the sentiment, it could be worth a look. Equity Research is as much a sales job as it is a research job, and if you can effectively pitch some forgotten names in a forsaken sector, you could end up trading a lot of shares.

Oct 22, 2011

Yeah, a 1.5 year necrobump - I'm just that good.

Nov 20, 2011

I would folow Oil and Commodities, most interesting in my opinion.

Nov 20, 2011

Definitely go with what interests you... like most people are saying.

I would not want to go into anything healthcare/ biotech/ etc related because I know I would never have a competitive advantage in any of those areas. As an econ major, how would I have a competitive edge in a binary event from an FDA decision in a drug that I barely understand the science behind? What's my added value?

In something like consumer/ industrials/ electronics, I would not be competing against PhD's... it's a level playing field. Also, these industries are a bit more transferable to other finance/econ based exit ops (which most people on this board seem interested in).

Winner Winner

Feb 2, 2015

Tech FTW

Feb 2, 2015

pick the group with the best analyst. thats where youll do the best.
if you dont wanna do that, pick a sector that you enjoy learning about.

Feb 2, 2015

Working for a good analyst is much more important than the sector you cover. I also agree with ModusOperandi that picking a sector you are interested in helps since it will show in the quality of your work.

Feb 2, 2015

I am also very interested in this. How do you know if a particular analyst is well regarded? Just google search?

Feb 2, 2015

Also, there is a good chance that "good analyst" -in lets say oil- has a pretty big team and doesn't really have time for you. It is only sensible to assume that most of the interaction will take place with the second most junior person on the team...

On the other hand, if you are working at a one guy-team -in let's say packaging-, ALL your interaction will be with that analyst.

Surely an ED/MD that ranks number 6 on his industry is better than an AD who doesn't yet rank at all, right?

Feb 2, 2015

Chances are that you get to pick nothing at all. Research vacancies only come now and then (usually on a replacement basis more than actual expansion).

But this is my take on your questions:

The preferred industries: those than generate loads of volume: banks, oil, autos, pharma, telecoms... At least if you want to end up making big dough, since bonuses are closely related to trading commissions.

I think "standard" industries are good for starters. Any consumer good team will teach you all the basics about the economy and how most companies make money. Biotech or oil explorers is more of a "playing the lottery" industries so the skills are not so transferable.

I would avoid insurance for being plain mind numbing.

Feb 2, 2015

Institutional Investor (II) rankings.

The point of working for an II ranked analyst is to be able to put "II ranked" on your resume, which can open more doors.

Feb 2, 2015

Do people really look at that? I mean... you could be shit and yet lucky to be have been put in a ranked analyst's team by HR. As a graduate, I mean.

Feb 2, 2015

Interesting question...personally I'd be inclined towards retail/consumer discretionary.

easiest to understand and its relatively easier to have a close vicinity to the industry/stock for example keeping an eye on outlets and sales on your covered stock.

Feb 2, 2015

I would go for banks. If you can understand banks you are the boss... and will get paid as one.

Feb 2, 2015

I would go for soft drinks i.e. analyzing Pepsi, Coke, Dr. Pepper Snapple, etc.

Feb 2, 2015

I think it's okay to tell them that you are industry agnostic and that you care more about the people you will work with in the group and finding the right fit.

It also depends on the bank you are interviewing at.

Sorry, just saw this was for research. It probably is really important for equities research.

Feb 2, 2015

I agree, O&G is not appealing to me. Tell me what the price of oil is going to do and I'll tell you where to put your money.

From a short-term career perspective, you are probably best covering whatever is hot at the moment. Internet stocks would be a good place to be. Green tech is another one. I personally don't like either of those areas because they are filled with cheesy, overvalued companies (Groupon -- holla!).

Practically speaking though, you can make money anywhere in the market if your timing is right and you have the skill. I personally like industrials because there are a lot of companies to look at and I love companies that make real shit. I got a triple last year out of a company that makes cable and wire -- extremely boring to some people I'm sure, but the stock was cheap and it was a trip to tour their facilities and see them making coax and extension cords, etc. I like that kind of stuff, so not surprisingly, most of my best picks have been in the industrials sector. Point is, go with what you like -- you're the one who has to do it, and there's no point in working this hard if you never have any fun.

Feb 2, 2015

Thanks for the feedback - I also really like "companies that make stuff" because I can understand those businesses better than, say, Pandora.. which seems more like speculating than investing since their business models are so new (just my opinion, not meant to insult analysts in these industries).

Feb 2, 2015

While I almost always agree with Ravenous, I disagree wholeheartedly about the unimportance of O&G.

I think ER in O&G is extremely HOT right now with all the scenarios playing out as crude becomes more expensive and nat. gas slowly becomes phased in. It is truly a historic time in the oil industry in which demand from emerging markets is going to become overwhelming.

To me O&G definitely affects equity prices. When crude shoots up past $100/$105/bbl, oil becomes effectively too expensive for a lot of consumers and the markets tend to adjust down.

Also, projecting oil consumption in a certain country is somewhat comparable to projecting their growth.

So yes, I do think O&G plays a big part in equity prices and I do think it is a really interesting time to get into it -- no matter how many others may feel the same way.

Feb 2, 2015

It didn't say it was unimportant. At least 30% of the job postings I see online are for O&G positions, both buy and sell side. It's an incredibly hot market as you said. I just said I don't personally like it, because I feel as though it is hard to do what I consider "real work" in anything that is driven by commodities. It's the same reason I wouldn't want to follow gold stocks -- they trade based on the price of gold, which I have no insight into on a long-term basis. It feels like almost pure speculation to me.

A person could make a great career in O&G if they had the right mindset and background, no doubt about it.

Feb 2, 2015

O&G is really hott right now, you are right to think that the valuations are a little different than most industries...however most industries have different factors. I would choose something you are generally interested in, check out different groups at banks and look at the recent deals they have done. I guess I'm bias because I'll be working in A&D starting july but A&D is a really interesting area...PM me if you want, I can give you some resources.

Feb 2, 2015

In talking to a few ER folks, they've said that you have to be able to be industry agnostic, as one poster above said. Nothing wrong with having a fave industry, naturally, though.

"When I was young I thought that money was the most important thing in life; now that I am old I know that it is."
- Oscar Wilde
"Seriously, psychology is for those with two x chromosomes."
- RagnarDanneskjold

Feb 2, 2015

You guys are seeing the oil & gas as being only made up of E&Ps, which is false. There is a whole universe of very cyclical service stocks that trade on supply and demand fundamentals, such as the pressure pumpers, proppant manufacturers, drillers, etc. It is true that E&Ps largely trade on the price of oil or gas and tend to be heavily driven by considerations such as rig counts, well results, decline curves, etc. In addition, an E&P analyst has to play geologist as well, which makes it tough for generalists to come in and make money, but the service side has some interesting opportunities for non-specialists.

Feb 2, 2015
macro:

You guys are seeing the oil & gas as being only made up of E&Ps, which is false. There is a whole universe of very cyclical service stocks that trade on supply and demand fundamentals, such as the pressure pumpers, proppant manufacturers, drillers, etc. It is true that E&Ps largely trade on the price of oil or gas and tend to be heavily driven by considerations such as rig counts, well results, decline curves, etc. In addition, an E&P analyst has to play geologist as well, which makes it tough for generalists to come in and make money, but the service side has some interesting opportunities for non-specialists.

Example of service providers: Halliburton and Transocean.

"When I was young I thought that money was the most important thing in life; now that I am old I know that it is."
- Oscar Wilde
"Seriously, psychology is for those with two x chromosomes."
- RagnarDanneskjold

Feb 2, 2015

Media. Media. Media.

Feb 2, 2015
thedude:

Media. Media. Media.

This. This. This.

Lots of industry evolution taking place in this space. It's fun to be in the middle of the old vs. new (or content-focused vs. platform-focused) convergence, especially if you get to cover companies from both sides (e.g. Netflix and Time Warner).

Feb 2, 2015

industrials and basic materials

Feb 2, 2015

TMT (think V, MA, EMC, fuck ZNGA), Energy...
I don't really enjoy Industrials and surely hate A&D.
Financials are kinda fun too.

Feb 2, 2015

media, defense, or internet

one of our analysts took clients to live on an aircraft carrier for a weekend (so badass, an ex-helicopter pilot -> ER)

another went to the playboy mansion party (back when they were still listed)

if you are into fashion, you can goto LV/Prada parties doing "research"

Feb 2, 2015

Fashion / Consumer has always been my thing, but been getting into the new tech-ish companies like ZNGA and LNKD lately and media as a few others mentioned. Definitely don't pidgeonhole yourself until you're ready to be pidgeonholed though, because some industries you'd never have exposure to just by fucking around on your own. You never know when one of those will end up being perfect for you.

Feb 2, 2015

If you are looking for something "fun" then yeah fashion, media and shyt is good.

But if you're after the fucking mullah then energy is the one.

In all honesty though....the job market is a bit too rough to really go cherry-picking the exact field you want.

Best Response
Feb 2, 2015

You would need to ask yourself the following questions:
- how much modeling and the level of accounting detail you want to be involved with
- what kind of data are you interested in looking at everyday? Macro economic data? Clinical trial data? Wading through PubMed articles?
- What is your background and how does it match up to the types of skills needed for different sectors? Biotech analysts usually have graduate level degrees in science, because they are more comfortable reading clinical trial data, how experiments are set up, and statistical methods used to calculate p values

Lastly, but most importantly. Which sectors are you mostly interested in? Do you find yourself drawn to a section of the news that you enjoy more than others? It also boils down to the particular analyst you might be working for. Your boss makes or breaks your career in ER. If you're not working for one of the top analysts in the firm or for a particular sector, you might pick up bad habits and most likely won't learn valuable skills that you can leverage when you exit the sell side.

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Feb 2, 2015
Porkbelly:

You would need to ask yourself the following questions:
- how much modeling and the level of accounting detail you want to be involved with
- not working for one of the top analysts in the firm or for a particular sector, you might pick up bad habits and most likely won't learn valuable skills that you can leverage when you exit the sell side.

It honestly never occurred to me that different sectors would have different levels of modelling and accounting details. Having said that which would you say are the most/least complex from a modelling/accounting standpoint?

And is there any way of finding out what analysts cover what sectors other than by just asking the recruiter or someone else in the firm?

Thanks for the help!

Feb 2, 2015

Hey Porkbelly, I guess most sectors would be somewhat driven by macro econ, but not sure which would be heavily driven by macro econ. I can think of mining, oil and gas, and some heavy industrial. Would like to hear more from you.

Feb 2, 2015

I would advise you not using words like "deal flow", as there is no deal flow in ER. You could be put on an IPO or a merger but that's an exception to the everyday work you will be doing.

Feb 2, 2015

The best industry to cover is the industry in which you will serve under an II ranked analyst.

Feb 2, 2015

I'm biased as I cover Consumer, but Consumer.

  1. Consumer companies in themselves are very intriguing, and I believe get to the heart of econ (I have a product that people like, how many of this product can I sell).
  2. The overlap into other industries: Internet disruption of traditional retail provides insight into Tech (Amazon, Ebay, Apple, etc); major source of revenue for Media companies is still advertising, which Consumer companies pay for, and some Media companies are grouped into "Consumer DIscretionary"; Autos (which I believe should be grouped into Consumer but counts as Industrials...but whatever) gives insight into Industrials; a hot-topic in retail these days is spinning real estate assets off into a REIT, so there are REIT insights to be gained too.

So yeah, with a Consumer background you'd have a leg-up on Tech, Media, Industrials, and Real Estate in addition to Consumer.

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Feb 2, 2015

Agreed with most of the points above.

Figure out what you want to get out of equity research. Is it learning advanced modeling skills, strengthening your writing skills, etc.? A lot of this will also depend on the industry, as well as your senior. As noted, certain industries will put more emphasis on modeling and some are just a world of their own (ex: FIG, oil and gas).

I would argue that you could work for two senior analysts that cover the same sector, yet you would have very different experiences. Some seniors get heavily involved in making detailed models, while others let the younger guys handle the modeling while they just worry about marketing and doing the high-level themes and writing the reports. It is critical during your final interviews that you really ask each analyst about the work flow, what they will really have you doing, the typical workweek for the senior and juniors, how the team functions, etc. to get a better idea.

Also be sure to look into the senior analysts that you would be working for. Do they win Starmine and Best on the Street awards? Are they frequently quoted in the WSJ, Reuters, and industry pieces? If so, they are likely influential, will have a large client list, and therefore will get noticed when they write reports and paid more. When you are working under them, you'll gain their skill set, learn how to think like them, and will have the chance to be picked off by other firms/companies that want your skills. Also you'll likely get paid more come bonus time since his sector will likely be generating larger trading commissions.

Lastly, what interests you? What are you curious about? You'll be a terrible analyst if you aren't actually excited by the industry that you work for (i.e. paper and packaging would suck). If something is interesting to you, you're more likely to be excited to go to work and put forth the extra effort to create great research.

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Feb 2, 2015

Deal flow has nothing to do with ER. Go for the sector you think your skills/interests cater to, and if possible try and scope out a lead analyst you'd like to work for. Research is about being right, and buy-side people take sell side ER people with a grain of salt anyway--just try and develop a good toolkit.

I met a lead analyst at CS, and he told me the way he kept his clients was by renting out a go-kart place once a year and inviting all his clients to race each other. I think he was under the impression no one really gave too much of a shit about what he said; they just really liked him.

Feb 2, 2015

Thank you all very very much for the responses. I think the Internet stocks are what I find most interesting as @PaulAllenIsInLondon said, they overlap with so many sectors. Having said that I did some basic research on the MD that covers the sector at my #1 choice and he's really new having come to the firm just this year and fresh off a promotion but from what i can tell he's been quoted/published a lot for his relatively short time with the firm so i take it that he's a very smart guy. Does him being relatively new to his senior role/the firm have any resounding pros or cons other than what one would reasonably imagine?

Thanks a lot again!

Feb 2, 2015

I wouldn't really look too much into him being relatively new to the firm, but...

Potential Pros:
-Probably hasn't been there long enough to piss off/burn out other younger analysts so you can always ask for their help and insight. Also probably has not ruined relationships with other senior analysts in similar sectors that can help you out on collaborative team notes.
-Probably less likely to leave the firm in the relatively near future if he just came on board.
-Senior analysts that are also MDs is a good sign that they are rock stars and have/will have influence around the firm and likely the industry. A well-paid boss is a happy boss.

Potential Cons:
-May not have a great relationship established with the sales force there just yet, which is a key to him getting paid and, to a lesser extent, you getting paid. See: "A well-paid boss..." above.
-May not know all the ins-and-outs of all resources at the firm that can help your team as much as a more seasoned senior would. With a seasoned senior at a firm, you might ask him for help on a project and he/she could be like, "Oh, yeah Steve did this exact project a few years ago and got help from Laura the admin. I'll see if I can find the file and methodology for it." That happens more often than you think and can save you hours of banging your head against a wall trying to do work that someone else already did once.
-Generally, if you are a solid senior analyst, your client base will follow you. Yet, he will still likely be in need of "earning the respect" of clients at the firm he just joined by proving that he knows his shit and can make them money.

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Feb 2, 2015

depends on the firm and the prestige of the sector at that firm. could be a cool sector that's run by a guy who's clueless so you won't learn as much.

Feb 2, 2015

Best sector is one that is covered by a top analyst. The most interesting sectors are based on preference, for me I would say Retail, Gaming, and Tech - which are probably the most sought after sectors leaving analyst reputation aside.

Feb 2, 2015
jss09:

Best sector is one that is covered by a top analyst. The most interesting sectors are based on preference, for me I would say Retail, Gaming, and Tech - which are probably the most sought after sectors leaving analyst reputation aside.

Retail - the most sought after? Kidding right?

Feb 2, 2015

I'm about to begin research in the insurance sector.... any thoughts? What should I focus on that is unique to insurance?

Feb 2, 2015

If you're just starting out, it's best to go with an industry (II rated) ranked analyst. You'll be putting in your time crunching #s anyways, so coverage or initiating coverage won't happen for a while (2-4 years at the very least, depending on the firm and team, and if indeed your intended career track is sell-side research). The pros of working for an industry/sector ranked analyst will most definitely be name recognition (very important if you want to do anything else). BTW, it doesn't matter what industry or group you start with as over time once you've proven yourself you may find yourself (down the road) having to start from scratch (but as a lead analyst) with lots of client coverage.

Feb 2, 2015

doesn't matter as long as you can talk about it. i interned at a BB ER department this past summer and even though i realized i didn't want to start there fulltime, i've been able to discuss my analyses, duties, etc. as a summer analyst. i was on a pretty unglamorous coverage team (think industrials), but my advice would be to try and work for a highly ranked analyst (check out Institutional Investor) or an MD and then work your tail off. you can try to maximize your chances for this by talking to your recruiter or HR.

good luck.

Feb 2, 2015

So you wouldn't say healthcare/biotech for example definitely if you were angling for a VC exit? Thanks.

Feb 2, 2015

They probably have PhDs for healthcare and biotech , right?

Feb 2, 2015

Advanced medical degrees such as PHD or MD are helpful in Pharma, Biotech, or Devices, but there are other sub-sectors in healthcare, such as Managed Care, Hospitals/Facilities, HC Distribution/IT, etc. that do not require specialized backgrounds in medicine.

Anyways, to answer the original question, frankly I am not sure. I guess you would want to target a sector that generated high trading volume because that plays a large role in how you get paid, but I'm not sure if Analysts or Associates that cover, say, Large Cap Pharma make much more than guys covering Machinery or some other unglamorous sector.

Feb 2, 2015

What are your options? Something where you can get a lot of modeling experience and the most potential visibility would be good -- generally you'll be best off doing this if you target mainstream industries with companies whose capitalization tends to be large, as opposed to more speculative ones like biotechs or specialty pharma. It also helps to go with an industry that you think that interests you.

That's what I'd recommend. At the end of the day, it doesn't really matter though, as it's the people that you work with that make the biggest difference.

Feb 2, 2015

The most important thing is to find an industry that you would be interested in learning about, since that is all that you are going to be doing. If you love computers, then do technology, if you love cars, well you get the point. Everything else will depend on how much responsibily you get from your senior analyst, and that can vary from group to group.

Feb 2, 2015

Slightly jealous you get a choice. When I joined, I just got assigned all the sectors that people didn't want to cover...

Personal views: I think industrials are generally a good one (learn how to invest through the cycle), healthcare and tech are interesting as well (learn how to make invest on sentiment / non-financial data). Consumer/retail is a double-edged sword (not much of a learning curve, which means you can get involved in idea generation sooner, but also a sector where it is very difficult to generate alpha). Oil & gas is a very steep learning curve if you don't have much experience there, but obviously a very interesting sector to be in for the near future.

Feb 2, 2015

Thanks piper. Do you have any views on which subsectors within industrials are particularly interesting / good places to invest? Just curious, why is the consumer/retail sector difficult to generate alpha relative to other sectors?

Feb 2, 2015

Consumer/retail: so much of the share price tends to be driven by sales growth, and it's difficult to get an edge vs. the market on that because it's very competitive and driven by fashion/preferences/trends etc. Whereas for instance in MedTech, assuming you have a similar salesforce, the better product should win. There are research firms that track customer traffic at stores and run surveys etc but they get it wrong all the time as well. There are always plays on cost-cutting / operating efficiency but those tend to rely on operating leverage i.e. you still need to be good at guessing where sales is going to be. Also don't get a lot of SOTP plays because companies in the sector tend to be simple businesses.

Industrials: I think aerospace is interesting, quite a few moving parts (new model ramp-up cycle, aftermarket cycle, utilisation rates, wide vs narrow body, FX dynamic because pricing is global but supply comes from both US and Europe), so lots of opportunities for markets to get things wrong, which it does frequently enough. Also feasible to do primary research because it's quite a concentrated market. I like cyclicals as well (cap goods / anything related to construction), they trade at high multiples during a trough, which means they can get overlooked, but it's really because they have high fixed costs that depress earnings, so ironically they are cheap when they look expensive and vice versa.

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Feb 2, 2015

Hi Guys,

I'm in a similar boat to above so some advice pls if possible.
Recently started as a junior in Aus based L/S fund. What industry coverage would be best (or to avoid) if my end game is a fund (probably L/S or long bias) in Hong Kong? Currently covering Asia-Pac Gaming & Chinese Property.

Thanks.

Feb 2, 2015

If you want something easy to understand, look at consumer products - you're familiar with some of the names and the analysis will make more sense to you as a result.

Feb 2, 2015

financials might be the hardest of the bunch. in this economy, banks are incredibly volatile and tough to master.

Feb 2, 2015

GE is in no way simpler than biotech, in biotech/pharma you're trying to value pipelines, GE is finance/industrial. The best thing is to figure out what interests you and to go for that.

Feb 2, 2015

healthcare is difficult to get into for the following reasons: 3rd party payors, regulatory influence, market demand and pricing not determined by basic economic theory of supply vs demand, and some other items.

If you want a simple industry to focus on i say focus on CPG or advertising, those are 2 very easy industries to understand and hence the most populated.

Feb 2, 2015

Financials are far and away the most difficult to analyze, being as more than 17x (on average) of their assets are OBS. It's not to say they're impossible to analyze, I just don't believe you will ever have anywhere near as good a grasp on a bank as you would a telecom or communications company. Like SEC said--if it's something tangible and familiar to you, it will make more sense.

I was taught that the human brain was the crowning glory of evolution so far, but I think it's a very poor scheme for survival.

Feb 2, 2015

Oh boy do I love biotech, one day the stock is $10, then the FDA approves the drug, and the next day its $20....

In any other sector, that's called a reverse split.

Baby you're the perfect shape, baby you're the perfect weight. Treat me like my birthday, I want it this way and I want it that way. It makes a man feel good baby.

Feb 2, 2015

greentech

The world has changed. And we must change with it.

I'm making it up as I go along.

Feb 2, 2015

If you're a junior and got an ER SA coming up then most likely you will not be able to choose (or even have any input on) what sector you get assigned to.

Pretty much the same goes for FT, although this may vary from bank to bank.

Feb 2, 2015

for now let's assume that you had a choice.

Feb 2, 2015

In that case go with a sector that you are genuinely interested in. It will take you anywhere from 6-15 years to become a senior analyst anyway, and what is hot right now will almost certainly not be hot a couple of years from now.

If you are going to spend so much time analyzing and reading about an industry then make sure it is something that you like. If you have a passion for cars then get into the auto industry (it will turnaround one day guaranteed).

Research is all about finding discrepencies between a stock's market price and its intrinsic value and you can earn superior returns investing in any industry at any point in time; you do not have to be necessarily in a growing industry.

Feb 2, 2015

in my case, i definitely will have a say regarding my placement into a specific sector.

at some point in may we will all go to the bank and meet with the various coverage groups, tech, aero & defense, etc etc. the candidates rank our top three spots, and the coverage groups rank their top three spots. they then assign people into various industries. i'm really hoping to get into the tech/semiconductor/software/internet sector! (but i'll take anything)

i talked to a bunch of guys there this summer who worked in machinery. seriously its a boring industry and i cant imagine anybody really wanting to cover it. but bottom line is that these guys had great jobs researching great companies, so whatever.

Feb 2, 2015

I am not in ER (just an armchair investor), but I like reading about and investigating banks and insurance co.'s. It's possible to uncover some real gems in the sector just because your average investor does not really understand their balance sheets/accounting practices, and isn't interested enough to try.

You can say the same about Biotech/Pharma/Healthcare, but you almost need a degree in the field or significant experience with the FDA's approval process to really know what you are reading.

Tech is awesome to read about, but I hate investing in the sector. Because it is fun, it is over-examined, making it harder find mispriced assets.

Feb 2, 2015

I would prefer to be watching over fermentation tanks in a brewery. That is why I am retiring form finance after my 2 year analyst stint is up and opening a brewery.

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Feb 2, 2015
heister:

I would prefer to be watching over fermentation tanks in a brewery. That is why I am retiring form finance after my 2 year analyst stint is up and opening a brewery.

Wow, my goal is to open up a vineyard. I figure I'll be working way more than 2 years to get the start up cash though; those things are terribly unprofitable.

Feb 2, 2015

Oil & Gas

"A man travels the world over in search of what he needs and returns home to find it." ~George Moore

Feb 2, 2015

I'm all about aerospace/defense -- what's not to like about the business of blowing things up? Cool tech and such.

"When I was young I thought that money was the most important thing in life; now that I am old I know that it is."
- Oscar Wilde
"Seriously, psychology is for those with two x chromosomes."
- RagnarDanneskjold

Feb 2, 2015

I guess in theory it makes sense but in practice it doesn't work like that. ER analyst usually try to stay within the consensus because its safer to be wrong in a group than the single sheep.

Feb 2, 2015

I'd say O&G but I'm really biased since I work in that industry (ER and IB).

Depends on what you mean by "best" but any question with that word in the title is bound to get shit all over.

If you are taking a long view, energy never really goes out of style given its capital intensity (companies spend and raise money frequently relative to other sectors) and if gas comes back (in North America) there could be a wave of M&A as people try to pick up cheap assets.

The Big 4 experience is OK but its more valuable to have industry experience. Its a very specialized field and attracts a lot of engineers/geologists.

Feb 2, 2015

Call me naive, but if I were going to be researching, modeling, writing, eating, sleeping, and breathing a single industry, my first priority would be that it's absolutely most interesting to me. O&G is damn cool, no disrespect intended, but maybe you're into airplanes or tech, or maybe breakfast cereal is your passion. Go into an industry you enjoy, and you'll be better at what you do, and this will take you further.

Feb 2, 2015
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Feb 2, 2015
Feb 2, 2015