Investing: three long-term growth trends
Given the current heightened geopolitical tensions and rise in cybercrime, Sekera predicts that more companies and individuals will prioritize privacy and security. (Photo: 123RF)
With inflation still raging, interest rate uncertainty and angst hanging over the banking crisis, some investors may be looking for some form of clarity in the markets. Here are three trends to observe in the long term, right now.
1. The transition to electric vehicles
Seth Goldstein, chairman of Morningstar’s research services committee on electric vehicles, predicts that electric vehicles will make up 30% of all new car sales worldwide by 2030. While large manufacturers tend to attract the most media and investor attention, the transition to electric vehicles holds potential for companies across the supply chain.
Luckily for Canadian investors, while lithium is an essential element in the composition of batteries and the demand for this resource is significant, there is a local company that is well positioned in the supply chain to take advantage of this sector of long-term growth: the Vancouverite Lithium Americas (LAC).
It is the preferred choice of lithium producers worldwide and it has three projects in development that are expected to begin production this year: Cauchari-Olaroz and Pastos Grandes, brine resources in Argentina, and Thacker Pass, a clay in Nevada.
Morningstar predicts that these projects will produce about 150,000 metric tons of lithium per year by the end of the decade. As Seth Goldstein explains, as demand growth outpaces supply over the coming years, the price of lithium is likely to remain well above long-term forecasts of US$12,000 per tonne through 2030.
Another Canadian company well positioned to benefit from the transition to electric vehicles is Magna International (MG), a large Ontario-based manufacturer of automotive parts and systems.
Its business versatility sets Magna International apart, as many of its peers focus exclusively on a particular sector of automotive production. Moreover, Magna has almost the capacity to design, develop, supply and assemble vehicles itself, according to analyst Richard Hilgert. The company now receives a five-star rating and the stock is trading at a 31% discount.
2. Medical technology
Another long-term growth trend identified by Chief US Market Strategist for Morningstar, Dave Sekera, is medical technology.
The growth of medical technology has particular potential in Canada, where the over 65 age group grew by 18.3% between 2016 to 2021, while the 15 to 64 age group grew by 2. 5%.
Bausch & Lomb (BLCO), a vision care company based in Quebec, should benefit from the aging of the Canadian population. The company’s revenues are derived from three business vectors: contact lenses, surgical instruments and pharmaceuticals used to treat eye problems. As Morningstar equity analyst Keonhee Kim writes, “macroeconomic factors, including an aging population, increasing prevalence of myopia, and a favorable product mix will act as positive factors for the company. »
As more and more customers upgrade contact lens materials, type and use (daily replacement or reusable), Bausch & Lomb stands to benefit from higher pricing and higher margins. , explains Ms. Kim. Bausch & Lomb shares are currently undervalued and trading at a 33% discount.
Another growth trend that Chief US Market Strategist for Morningstar, Dave Sekera, suggests investors are looking at is cybersecurity technology.
Given the current heightened geopolitical tensions and rise in cybercrime, Sekera predicts that more companies and individuals will prioritize privacy and security. In fact, given the financial and reputational costs of a ransomware attack, Mr. Sekara sees cybersecurity as “one of those areas where management, even in a recession or downturn economical, is unlikely to reduce costs. »
And there is one Canadian company that stands out for its unique potential to benefit from both long-term trends in cybersecurity and vehicle automation.
BlackBerry (BB), which was once known in the manufacture of smart phones, now focuses on secure communications at all levels in automotive, government and healthcare. “BlackBerry has positioned itself in fast-growing markets that benefit from long-term trends toward security and connectivity,” said Morningstar analyst William Kerwin.
Although BlackBerry faces fierce competition in the cybersecurity space, including from giants like Microsoft and Symantec, the firm has maintained its strong presence in the market. As the company allocates less sales revenue to operating costs in the coming years, Morningstar expects BlackBerry margins to improve. The company’s shares are currently trading at a 20% discount.