HI there fellow monkeys, first time poster here. I just recently broke in to buyside ER and was given the unique opportunity to choose which sector I want to cover since I'll be their first ER guy. Which sector would you guys suggest and why? Thanks in advance
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Something that interests you
BIotech — 1. Largely uncorrelated versus most sectors. 2. Ability to differentiate oneself versus the benchmark meaning the sector is not nearly as efficient as say auto manufacturers covered by 15+ SS analysts. 3. The fact that it's esoteric in nature, therefore if you are able to gain an edge, you will be highly sought after in the industry.
Thanks for the responses guys, but fintech, how would one go about analyzing a biotech company? I heard they're pretty difficult to evaluate without an advanced degree in one of the physical sciences
Whatever you'll enjoy and be good at. More you enjoy it, the better you'll probably be. Just recognize they're all pretty different.
Industrials: very traditional businesses. They generally make things and have large operating leverage. they are also pretty cyclical (and boring, if you ask me). Healthcare: tons of changes/regulation/etc to navigate, so you can add value. I think it's pretty interesting, and it's not too correlated to the economy. Tech: good mix of interesting and innovative companies. Some build stuff, some are services. Consumer: Staples is obviously more stable than discretionary, but both generally are selling goods to consumers. This can be annoying, because it can be "fad-like" Energy: it's oil prices Utilities: it's rates Real estate: mostly REITS, so mostly rates. But, I think REITS are more interesting than utilities or energy, because there are some very unique REITS out there, and you can add value if you can find them. Materials: mostly commodity stuff that moves with commodity prices and economic strength. Similar to REITS, there are some interesting more niche businesses that can add value. Telecom: it's like 7 companies... and most of them are slow growth and interest rate plays. I'd probably avoid.
Why is utilities so concerned with rates?
Because they are mostly regulated businesses, so they grow very slowly and pay out pretty significant dividends (~4-5% dividend yields). Any stable business that pays a high dividend yield like that is essentially used by investors as a bond proxy to make income. Therefore, as rates rise, that 4ish% yield becomes less attractive to investors, and as rates fall, it becomes more attractive.
Plus most Utility companies are essentially a Monopoly in their region so the rates are controlled by the states Utility Board. This board sets rate hikes or decreases due to numerous reasons, capex, green initiatives, EIA stats, etc.
I like the idea of tech as it seems exciting with lots of growth opportunities, any subsectors of tech you think one would find more attractive opportunities in? I like the idea of business software maybe because it seems like their competitive advantages could be fairly robust
I suggest you check out some threads by WallStreetPlayboys - they have some great overviews of the different sub-industries within these broad sectors.
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