3
INDUSTRIALS SECTOR DRIVERS
Simply looking for the best stock is the most common investor mistake. That may sound counterintuitive, but it’s true. Unless you’ve got a firm grasp on a sector’s fundamental drivers and how they impact industries and individual firms, it’s a near hopeless task to choose the right stocks. High-level sector drivers often have equal, if not greater, influence on a stock’s performance than unique firm-specific fundamentals, so accurately identifying sector drivers is a must.
Every sector has unique drivers relative to the broader economy, and they’re not static—they constantly change. Therefore, what’s vital for Industrials in 2009 may not be exactly the same in 2010. Investing environments shift too quickly for any definitive “rules” for all time. This is especially true for a sector as diverse as Industrials, which operates in many different markets and maintains a variety of drivers.
However, there are certain factors that are relatively timeless and likely will always be important. From a macro perspective, corporate and government spending are the most important Industrials sector drivers, as corporations and governments are Industrials’ primary customers. These two drivers should shape any analysis when making Industrials-related investment decisions. We’ll examine each in a bit more detail in this chapter.
CORPORATE SPENDING
What drives corporate spending? The most important factors include:
• Economic strength
• Corporate financial health ...
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