It’s hard enough trying to figure out where the economy and stock market might be headed in three months, let alone nearly a decade from now.
Still, certain trends already are in place that might point to great investment potential many years down the road.
Analysts at investment researcher Morningstar dusted off their crystal balls for a glimpse of where they see growth potential by 2030. They unveiled these forecasts — and possible stock picks to bet on now — at the company’s annual investment conference presented virtually in mid-September.
Cannabis: Moving mainstream
Marijuana has been associated with illicit drug use for decades, but chemicals found in the plants also have proved helpful for relaxation, pain relief and other medicinal needs.
So far, 11 states have legalized recreational cannabis use, 33 others allow medicinal use and these totals will likely increase, predicted Kristoffer Inton, a Morningstar analyst who covers the industry.
So far, most marijuana/cannabis use is on the black market, but attitudes and laws are changing. Morningstar projects that the current rate of $10 billion in legal U.S. cannabis sales could swell to $80 billion by 2030, with similar growth in Canada.
Factors driving wider adoption include more states legalizing cannabis, partly to reap more tax revenue, and a growing number of consumers. Inton expects many black-market marijuana users will become legal-cannabis consumers because of greater product safety and choices, such as edible forms of the drug, in the legal realm.
Of the hundreds of companies now engaged in cannabis operations, Inton said his two favorites are domestic producers Curaleaf Holdings (CURLF) and Green Thumb Industries (GTBIF). He also suggests following five others: Aphria (APHA), Aurora Cannabis (ACB), Canopy Growth (CGC), Cronos (CRON) and Tilray (TLRY).
Among risks, cannabis companies have been striving to build up operations and win market share, which means many are burning through cash and might not have the financing to survive to 2030, Inton said. But that risk is overshadowed by regulatory uncertainty — how quickly and in what forms state governments might legalize use.
The 5G ‘evolution’
More. Better. Faster. The advent of advanced 5G or fifth-generation cellular standards will allow more phone, internet, computing and other devices to connect with one another and operate more efficiently and at lower cost, with broad applications across industries and society overall.
But from a technological and investment standpoint, Morningstar analyst Michael Hodel sees the transformation as more “evolutionary than revolutionary,” as the emerging standard builds on existing 4G capabilities. It will “leverage (existing) technology to drive innovation,” he said.
Many types of corporations and industries could benefit, and Hodel recommends a mix of investment ideas to capitalize on the trend. His favorite 5G plays include Skyworks (SWKS), Qualcomm (QCOM) and Qorvo (QRVO).
He also suggests Nokia (NOK) among cellphone makers, Verizon (VZ) for telecom services and DISH (DISH), which is developing a nontraditional wireless network.
Electric vehicles: What’s in the garage?
Electric vehicles have made great strides in recent years, and that momentum will accelerate in the coming decade, said Morningstar analyst Seth Goldstein, who predicts one in five new vehicles sold globally by 2030 will be electric.
Increasingly, electric cars and trucks will be able to travel farther on a single charge, and they will be able to charge more quickly — in five or 10 minutes compared with a half-hour or more now. In addition, more public charging stations will become available, making extended road trips feasible, and prices will come down.
In fact, Goldstein expects electric vehicles will become cheaper than gasoline-powered vehicles by around 2025 when you factor in total operating costs — purchase price, fuel, maintenance and more.
“They will become cheaper, and without subsidies,” Goldstein said, though he cautions that tax credits and other incentives still will be needed for a few more years.
Investors have many ways to participate in the industry’s growth. Goldstein likes vehicle manufacturers General Motors (GM) and BMW (BMW). His other picks include parts-supplier BorgWarner (BWA), lithium producers Albemarle (ALB) and SQM (SQM) and battery maker Panasonic (6752).
Risks, in his view, include any efforts to remove tax incentives too quickly or delay construction of the charging-station network.
Renewable energy gaining power
Alternative energy sources including solar and wind power eventually will supplant the burning of fossil fuels, but it won’t happen by 2030, predicts Travis Miller, another Morningstar analyst. “Solar and wind alone can’t power the (electricity) grid 24 hours and seven days a week,” he said.
Still, he expects continuing progress over the coming decade to the point where renewable-energy sources account for 22% of electricity generation by 2030, up from 8% currently. Polices adopted by states to encourage alternative-energy use will drive some of this demand, and so will corporations. Companies including Walmart, Google, Apple, Bank of America, General Motors and Facebook all have vowed to greatly reduce their carbon footprints in coming years.
As alternative-energy sources become available, costs will come down. “Renewables will get cheaper,” Miller said.
He likes Phoenix-based First Solar (FSLR), one of the largest manufacturers of solar panels in the world, along with NextEra Energy (NEE), which has operations in renewable energy as well as the utility industry through Florida Power & Light. So too for Edison International (EIX), which is helping to build out the infrastructure to support renewable energy but also operates the utility Southern California Edison.
Pharmaceuticals: Still favorable
Morningstar views the pharmaceutical and biotechnology industries as having solid long-term growth prospects. In part, this reflects more companies shifting their research and development toward treating high-demand diseases where pricing power is better, said Karen Andersen, a Morningstar analyst.
Innovation offers more opportunities to treat diseases including cancer, and the Food and Drug Administration has shown a willingness to get new drugs to market faster, she said.
One risk she cited for companies is the possibility of a fundamental change in the way Americans pay for health care, such as Medicare shifting to a single-payer model, which could lower drug prices. The same could happen if U.S. drug prices were pegged to a basket or mix of prices in foreign nations.
At any rate, many pharmaceutical and biotech companies could see solid profit and revenue growth ahead. Andersen cited Roche (RHHBY), Merck (MRK) and Biogen (BIIB) as her favorites.
Reach Wiles at [email protected]