Certain policies can push some companies and industries ahead and put roadblocks in front of others. Some trends, though, are propelled forward so effectively by forces including scientific and technological advancement, aging demographics, and growing demand that even politics can't slow them down. Investors would be wise to identify the best companies benefiting from such trends, buy shares, and never sell.
Politicians can only do so much in the face of market dynamics. In 2008 while campaigning, former President Barack Obama said, "we must end the age of oil in our time", but America went on to lead the world in oil production from 2012 through 2016. Similarly, during his 2016 campaign, President Donald Trump stated "we're gonna put those (coal) miners back to work. We're gonna get those mines open." But coal's supply of American electricity needs has fallen from almost 38.6% in 2014 to 23.4% in 2019 and is expected to have fallen to just 19% this year.
With that in mind, let's look at three stocks benefiting from trends that will be virtually unstoppable, no matter which political party prevails after Nov. 3.
Gene sequencing will only gain importance in healthcare
The price of sequencing a human genome has plunged in recent decades. When the Human Genome Project delivered the first sequence in 2003, it cost an eye-popping $150 million. Reducing costs allows the technology to be used in more and more ways, thus growing the market. The sequencing market is expected to grow 19% per year through 2025, reaching more than $25 billion.
But in the past few years, Illumina (NASDAQ:ILMN) CEO Francis deSouza has talked of being able to sequence human genomes for $100 apiece. His comments have set in motion a great deal of contemplation across the healthcare world among researchers considering what they could do with such services if the prices dropped that low. It's the same "prime the pump" approach the company took when it first began discussing the possibility of $1,000 genomes in 2014. While the cost today is around $600, earlier this year China's BGI Group claimed to have cracked the $100 barrier using U.S. technology.
The steadily falling costs have led to an acceleration of research into curing genetic diseases, and developing treatments for many other illnesses -- from relatively simple targets like sickle cell anemia (a condition caused by a mutation on a single gene) to more complex applications such as sequencing a patient's individual cancer and tailoring a treatment specific to that individual. Illumina dominates this market -- its machines produce more than 90% of the world's gene-sequencing data.
The company's dominance and progress reducing the cost of sequencing a genome show up in its financial statements. Illumina has grown sales this decade from just under $1 billion in 2010 to more than $3.5 billion in 2019, representing more than 16% annual growth. Earnings per share have grown more than 25%. With a dominant share in a fast-growing market, the future is likely to look much like the past for Illumina: promising and filled with growth.
Solar and wind energy are unstoppable
In 2019, the percentage of energy produced in the U.S. by renewable sources surpassed coal, and while those green choices still trail behind petroleum and natural gas, they're gaining fast. The price of renewable energy has collapsed in the past decade to the point where green energy is now competitive with gas-fired plants, coal, and oil. In fact, by the end of 2019, renewable capacity was enough to power roughly 27% of global energy generation.
Utility companies aren't always the first businesses that come to mind when you talk about renewable energy, but NextEra Energy (NYSE:NEE) is an industry leader. It's the world's largest generator of wind and solar electricity, with projects in most states and several Canadian provinces. NextEra has solidified this leadership position with more than $75 billion in investments since 2014 and hasn't slowed down.
When a company is making tens of billions of dollars in investments, the performance of the business can sometimes be difficult to untangle. For NextEra Energy investors, two numbers tell the story.
Book value -- the difference between the company's assets and liabilities -- has more than doubled this decade, from $8.59 per share to $18.71 in 2019, a 9% annual growth rate. This shows the intrinsic value of the company is growing.
Second, the operating income -- profit realized from the normal business operations -- has grown 5% per year this decade to $5.1 billion. These metrics combined tell us that the business makes considerably more money each year, and that, despite large investments, the positive difference between company assets and liabilities is also expanding. With renewables continuing to make up a greater share of energy production each year, NextEra is positioned to continue growing no matter who is in the White House.
The need for steel
The nonpartisan Congressional Budget Office estimated in 2015 that each dollar spent on infrastructure generates more than two dollars in economic benefits. In 2016, an estimate of the U.S. infrastructure gap was released by the American Society of Civil Engineers -- $2 trillion. Statistics like these were reflected in both candidates' proposals for significant infrastructure spending during the 2016 presidential campaign, and the current administration has declared it to be infrastructure week at least seven different times since.
Nucor (NYSE:NUE) has bucked the trend in the steel industry by operating smaller plants and delivering higher-margin products. The company's novel approach was even featured in Jim Collins' Good to Great, one of the most-loved and best-selling business books of all time.
Making steel is not an exciting industry and investors treat it as such. While high-flying cloud software stocks trade for 50, or even, 100 times revenue, Nucor has historically traded for between 0.7 and 1.0 times sales. Although timing ratios like these are no guarantees of investment success, the stock's current valuation of 0.73 times sales has historically been an opportune time for investors, with a multi-year time horizon, to acquire shares.
With so much of the nation's infrastructure like roads, bridges, dams, and airports in need of repairs and replacements, whatever party holds the purse strings will have to loosen them soon. And with both parties discussing various stimulus packages to assist the coronavirus-ravaged economy, this maker of steel products such as rebar, sheets and plates, and piping, stands to benefit.
Trends that will persist past election day
Genomic sequencing, renewable energy, and infrastructure reconstruction are generational trends that are just getting started. Presidents have come and gone over the last two decades but the cost to sequence a human genome continues to fall, solar and wind energy keep growing as a share of energy production, and our infrastructure needs dire improvements.
Illumina, NextEra Energy, and Nucor are in position to benefit from these unstoppable trends. Investors looking for companies that are set to grow over the next decade and beyond, regardless of the political climate, would be wise to buy shares in these great companies and sit on their hands. The stock market will fluctuate month to month but these 'new normal' trends will drive profits, and profits drive share prices over the long term.