New year, new investment trends. Here are five potential money-making sector themes to watch for in 2020.
1. Are UK housebuilders overheating?
One of the best sector performers over the past decade was undoubtedly housebuilders. Shareholders of Berkeley (BKG), Barratt (BDEV), Taylor Wimpey (TW/) and Persimmon (PSON) all enjoyed triple-digit gains over the period. Underpinning the sector recovery is the ‘Help To Buy’ program, launched some eight years back by the then Chancellor Osborne.
Remarkably, the whole sector enjoyed a swift recovery post-Brexit referendum and established new all-time highs soon after. Take Berkeley, the premier housebuilder in London. Its share price rose by more than 6x in the past ten years despite Brexit and the slowing house price growth in London (see below).
What next? Should we chase this sector in 2020 and beyond? Perhaps. For medium-term momentum traders, the sector trend remains positive. New highs over the turn of the year affirmed this view. But we shouldn’t rule out some reversionary moves during 2020 especially as prices are current far extended above their long-term means, as proxied by the long-term moving average. Even for long-term investors, it may be sensible to take some chips off the table on further rallies.
2. Will the Pharma boom extend in 2020
Healthcare/pharma stocks – Astra (AZN) and Glaxo (GSK) – had a relatively bullish year. Their price trends are unmistakably positive despite the ongoing choppiness. It appears that investors are buying at every setback. In market parlance, we call this ‘accumulation’.
Astra, for example, remained overall firm throughout 2019. Prices continued to scale new heights regularly. At this rate of appreciation, reaching the psychological 8,000p should not be too difficult (see below). Meanwhile, the laggard Glaxo, is also climbing, although at a slower pace.
For those wanting a more international exposure, Worldwide Healthcare Trust (WWH) appears to be an interesting pick on the healthcare although its trend is overbought.
3. Utilities recovered in 2019. Will it rise again in 2020?
Conservatives’ decisive win of GE19 set fire under the utility sector. Prices jumped as investors celebrated the receding threat of nationalisation, a key pillar of Labour’s manifesto. National Grid (NG), United Utilities (UU/), Southern (SSE) and Severn Trent (SVT) – all saw a rapid rise in their share prices into the year end.
This recovery led to a classic development of a ‘base formation’, as National Grid shows below. This means that the entire sector could be undergoing a multi-year uptrend as investors’ perception of the sector turns more bullish. A re-rating of the sector is underway and there could be more upside in the months ahead.
But after such a sharp rally, e.g., SVT and SSE up 30% and 40% respectively since June, these rallies could be short-term overbought and probably due for a temporary consolidation. Watch to add on a pullback.
4. Will oil stocks extend its relative and price underperformance in 2020?
2019 was not a good year for oil stocks. BP (BP) and Royal Dutch (RDSA) both saw sharp falls in their share prices in the second half of last year.
BP, for example, failed to advance beyond its 2018 high. Instead, prices are languishing at its multiyear lows and, more importantly, below the 500p level.
But with the overnight airstrike of Iranian general in Iraq (3 Jan) oil prices jumped to its highest level in month (as did gold). This may set to cushion some of the bearish trends on the oil sector. Perhaps, just perhaps, that the oil stocks may stage a intermediate rebound near term as geopolitical tensions elevate oil prices. By the way, Shell and BP are yielding 6.2% and 6.4% respectively.
5. Is this the time to invest in ‘alternative energy’ stocks?
Admittedly, oil stocks are seen to belong to the ‘old era’ when combustion engines, powered by fossil fuel, ruled the road. As we look forward into the next decade, battery cars and alternative energy generators are set to scale because of stricter environmental rules.
In fact, investors are already making huge bets on companies producing energy from wind, solar and other environment friendly sources.
Renewables Infrastructure Group (TRIG), a mid-cap investment trust with assets in Europe, appears to enjoy a strong backing from the market. Prices are flying into new long-term highs following a multi-month consolidation at around 130p.
Other renewables include John Laing Environmental Assets (JLEN) and Greencoat (UKW).
But technically this sector is short-term overbought, just like housebuilders. The hype around the sector means you are paying up now for these assets. Wait for a consolidation to initiate/add positions here.
Or if you’re looking for individual stocks to watch Hargreaves Lansdown in a recent note to clients suggested keeping an eye on these stocks in 2020:
- Ibstock – foundations for the future
- DS Smith – the whole package
- Keywords Studios – game maker’s one-stop-shop
- Novo Nordisk – growth in hormones
- WPP – turning a corner?
Jackson has over 15 years experience as a financial analyst. Previously a director of Stockcube Research as head of Investors Intelligence providing market timing advice and research to some of the world’s largest institutions and hedge funds.
Expertise: Global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University.