Telegraph on Sunday29 Dec 2020 22:27
Share
The sectors to invest in for the best returns next year
Utilities and technology firms may struggle, but profits could rocket at companies poised to recover as the economy does
Sam Benstead
Oil firms are primed for a blowout 2021 as profits are forecast to rise sevenfold. UBS, the bank, calculated which investment sectors would grow their earnings the most next year, according to the views of hundreds of stock analysts.
image
The research focused on American shares, but sectors behave in similar ways across the world. Surging profits at American oil companies would be driven by higher oil prices and rising international demand, which would have the same impact on British firms such as BP.
Financial forecasting is a useful indicator of consensus and can be used by DIY investors to tag along with the professionals – or take a contrarian view.
UBS said the energy sector, which is dominated by oil companies, was predicted to grow its earnings per share by 625pc in 2021. London-listed Shell and BP are among the world’s biggest players. Next was the industrials sector, home to engineering and machinery companies such as BAE Systems and Rolls-Royce, where earnings are expected to grow by 79pc next year.
The consumer discretionary sector, which includes high street retailers and fashion companies, followed with a 50pc increase. A strong British pick here would be Burberry.
These sectors are all considered to be “cyclical”, meaning that profits rise and fall with the health of the economy.
UBS’s earnings forecasts imply that stock market analysts expect a strong economic recovery next year, which would boost the shares that suffered most in 2020.
By contrast, “defensive” stocks, such as household goods maker Unilever and drinks giant Diageo, and technology firms will be the slowest-growing sectors next year, according to UBS. Technology businesses will grow earnings by 14pc, consumer staples by 6pc and utilities, such as National Grid, by just 5pc, it found.
Mark Haefele of UBS said: “We expect the more economically sensitive markets and sectors, many of which performed poorly in 2020, to lead the charts in 2021. After a rally of over 50pc in 2020, the top five American technology firms alone now represent around one eighth of the global stock market. We think other business areas will see stronger earnings growth in 2021.”
British alternatives to the Silicon Valley tech favourites include food delivery services Ocado and Just Eat.
‘An economic recovery will boost the shares that suffered most in 2020’
Does this mean DIY investors should ditch technology for energy? Mr Haefele said a mixed approach was best as the pandemic had made the world more digital and not all companies would be able to adapt. This means sticking with some technology firms while also backing companies due a recovery.
“While we think that in the short term investors can profit by investing in companies exposed to a ‘cyclical’ recovery, thi
Sign In
Follow the stocks
