Today, investors have a myriad of options to build a diverse portfolio that will sustain well in almost any investment landscape. Here are some keys for your success.
Buy and hold equities of great companies are the most efficient way to achieve a personal long-term investment objective. This approach avoids the constant emotional stress of trying to do “market timing.” Obviously, to get this strategy right, the selected equities need to be part of a secular growth trend supporting above average growth expectations. As of today, the most regarded secular growth trends include:
- Semiconductors
- Electric vehicles
- Artificial intelligence
- Robotics and automation
- Leisure and outside activities
In the semiconductor sector, we find Applied Materials a particularly interesting case while Chewy offers similar prospects in the leisure and outside secular trend.
Applied Materials (AMAT.O)
Applied Materials supplies semiconductor manufacturing equipment to foundries, which then use it to fabricate chips and circuits. Ever since March 2020, there’s been a shortage of semiconductors around the world, and Applied Materials is one of the key suppliers to the industry. And this shortage is not going to go away anytime soon. On the back of an increased demand, AMD has seen its sales figures increasing, and revenues have increased in the same manner, i.e., adjusted earnings increased by 42%, to $ 1.39 per share.
With major companies like Intel, Samsung, and Taiwan Semiconductor Manufacturing building in the next three years capacities worth more than $150 billion, the future of AMD remains most likely untainted. It can be expected that the global semiconductor equipment market will exceed $160 billion a year starting in 2025, which is twice the market size of 2020.
Valuation: with a forward PE of 22, the stock looks attractively valued in this context, and any weakness should be an ideal buying opportunity.
Chewy (CHWY.K)
Where is the connection between the fast-growing leisure and outdoor market segment and a pet food company? Research undertaken in 2010 at Mälardalen University School of Health, Care and Social Welfare Eskilstuna/Västerås, Sweden, concluded that pet owners differ from non-pet-owners in aspects of socio-demographics, health, physical/leisure activities, and work situation. Furthermore, the study showed a positive bias in favor of pet-owners concerning aspects of health, physical and leisure activities, and work situation. Today, this tendency has gained full recognition and large population segments in developed markets are associating pet ownership with increased outdoor activity. In fact, pet ownership has increased in recent years by 6.6% per year on average, and similar developments can be expected in the future.
Consequently, the pet products and supplies industry is in its early phases of growth, and companies like Chewy, Unilever, BASF, and Nestlé, amongst others, are best positioned to take advantage of this fast-growing market. Chewy is an online retailer for pet products, and the company finished fiscal 2020 with revenue up 47% to $7.15 billion as pet owners switched to online shopping amid the pandemic.
This is proof of the huge uptick in the number of pet owners shopping online. Chewy saw a 43% increase in its active customer base last year to 19.2 million users. Additionally, its customers are spending more money as the net sales per active customer increased 3.3% year over year to $372. The company should witness a continuous expansion in both of these metrics over the long run. Chewy increased its total revenue by $2.3 billion in fiscal 2020, meaning it was able to claim approximately 60% of the additional sales.
Outlook: It is expected that by 2025 online retail sales for pet food and pet-related items will reach 53% of the total market size, up from 7% in 2015 and 30% in 2020. Chewy, a market leader in this segment, is expected to take up much of the $110 billion US pet food market.