Four industries flourishing under Warren Buffett's dark economic clouds

Tuesday, Mar 21 2017 by
Four industries flourishing under Warren Buffetts dark economic clouds

There’s a typically fearless comment in Warren Buffett’s latest letter to Berkshire Hathaway shareholders, where he says:

“Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons.”

Buffett was referring to the sorts of buying opportunities that come up when markets face turmoil. Seismic setbacks in 2000-02 and 2008 are classic examples - but they’re not the only ones.

Last year’s decision by the UK to leave the EU now looks like a pothole for equity prices rather than the type of collapse triggered by a dotcom crash or financial crisis. Even so, the Brexit vote did cause unsettled economic weather which boosted some sectors and battered others.

Specifically, there was an acceleration in the performance of some shares that tend to move in sync with the economy - like cyclicals, sensitives and basic materials. On the flip-side, high yielding defensives lost ground.

With Brexit negotiations set to kick off after March 29, the economic uncertainty continues - but trends suggest that some sectors remain more attractive than others in these conditions. A simple way to see this is through the lens of the StockRanks.

Using StockRanks to find sector trends

StockRanks are a framework for assessing shares against three factors that have historically driven investment outperformance - Quality, Value and Momentum (QVM). Evidence shows that shares in good quality companies that are cheaply priced and have improving price and earnings strength, have a higher probability of performing well.

Over the past four years, a regularly refreshed basket of stocks in the top 10% of the market based on their combined QVM have strongly outperformed. Right now, a look at the top 10% basket (with a minimum market cap of £10m) suggests that cyclical and sensitive sectors offer a strong source of exposure to these factors. You can see this on the High StockRanks and Sectors screen here.

Metals - miners are digging in

2016 was a vastly better year for mining stocks after a prolonged spell out of favour. It was especially promising for those exposed to copper, gold and silver (metals which all rose in price). Anglo American was one of the best performers in the sector. With a StockRank of 99 it’s also one of the…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>

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3 Comments on this Article show/hide all

Blissgull 21st Mar '17 1 of 3

" Galliford Try (which recently received a takeover approach from Redrow)"

I don't think they did. Rather Galliford Try and Redrow both made approaches to Bovis Homes.

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Ben Hobson 21st Mar '17 2 of 3

In reply to post #176915

Oh, hell, mental block from typing too fast. Sorry.

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herbie47 21st Mar '17 3 of 3

Re unemployment, is that anything to do with immigrants leaving either due to Brexit or the £ falling so much?

Any concerns about interest rates rising now that inflation has risen above 2%.

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Ben Hobson

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