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Stock themes: Technology and the Fourth Industrial Revolution

And some of the major market capitalisation companies with exposure to these themes.

As equity portfolio managers, we are regularly challenged to identify opportunities concerning equities that might, at some future point, make a major contribution to our daily lives. The impact of the Covid-19 pandemic has meant that the 4th Industrial Revolution has arrived earlier than any of us could ever have dreamed it would.

Ten themes

Morningstar, in a recent research paper, highlighted several new technological themes:

  1. Big data and analytics: The potential of data sets too large and complicated to manipulate or process by using standardised methods. Sub-themes here include the Internet of Things, machine learning, and artificial intelligence.
  2. Networks and computer systems: Technological leaps, ranging from hyperconnectivity and integrated systems to service continuity and new software-defined architectures will inevitably have an enormous impact on the ways in which people connect software with hardware.
  3. Nanotechnology: The division of technology dealing with dimensions and tolerances of less than 100 nanometres. There are a variety of potential applications in this area, including in medicine, computers, manufacturing and travel.
  4. Medicine and neurosciences: Sciences like neurochemistry and biotechnology can radically change the ways in which we treat diseases.
  5. Energy and environmental systems: This area concerns the exploration of renewable energy sources – among them solar, wind, water and battery power. There is increasing demand for metals such as copper and platinum for use in electric motors, as well as for use in the catalysts used in modern petrol engines.
  6. Robotics: The area of technology concerned with the design, construction, operation and application of robots. Applications here stretch across technological, industrial, medical and consumer-oriented channels.
  7. 3D printing: A process by which a physical object is made from a three-dimensional digital model. The technology has sufficient potential to disrupt a few industries, from industrial manufacturing and medicine to consumer products and retail.
  8. Bioinformatics: The science of collecting and analysing complex biological data. The modern tendency to gather data quantifying aspects of the daily life of individuals has enormous potential to positively influence human life expectancy and quality of life.
  9. Financial Services Innovation: This involves new financing sources and platforms, as well as currencies, value transfer and payment methods.
  10. E-commerce (electronic commerce): The purchase or sale of products by electronic means using online services or via the Internet.

Company exposure to the themes

The names of some of the major market capitalisation companies with exposure to these themes are listed below. Along with the company exposure, the price/earnings ratio for each of these companies over the next 12 months is also noted – a good measure of valuation and one that also accounts for future growth.

Theme Company PE next 12 months
1. Big data and analytics Microsoft 34
Facebook 24
Palantir Technologies 156
Google 28
2. Networks and computer systems Apple 26
Cisco 16
Qualcomm 15
3. Nanotechnology Intel 13
TSMC 32
ASML 45
AMD 39
4. Medicine and neurosciences Roche 19
Novartis 13
Johnson & Johnson 17
5. Energy and environmental systems Tesla 116
Vestas Wind 48
First Solar 34
Anglo American 5
6. Robotics Intuitive Surgical 68
ABB 24
7.3D-printing HP 7
Stryker 27
Align Technology 61
8. Bioinformatics Illumina 83
Stryker 27
Roche 19
9. Financial services innovation Tencent/Naspers 26
Visa 33
PayPal 54
10. E-commerce Amazon 63
Alibaba 14
Shopify 277

Source: Bloomberg, Morningstar

Valuation matters

Although most of these companies have ample opportunity for growth, their valuation must still be considered. The valuation paid at the inception of an investment can have a significant effect on its future returns over the long term.

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Franske Neiteler

PSG Wealth Pretoria-East

COMMENTS   1

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Very informative and well presented.

Thanks for the illustrations and suggestions across the spectrum of this neXt most essential sector.

End of comments.

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