Author Topic: Which industries are currently over-earning?  (Read 1448 times)

Nell-e

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Which industries are currently over-earning?
« on: February 13, 2018, 12:53:15 AM »
I'm starting this thread so people can chime in and highlight industry risk.  I'll start off with a couple of industries.

1) The obvious one is brick and mortar retailers who serve the middle class.  Still too many malls.  Not sure about high-end retailers.

2)  I think the US auto industry is over-earning because it's had massive tailwinds.  Peak sales volume over the last couple of years (pent-up demand from GFC).  Last year, the hurricanes helped.  Average sales prices likely to fall.
 Low interest rates have helped customers to pay for price increases. Automakers offering more incentives. Recovery of housing prices.  Low gas prices.  My understanding is a lot of cars are coming off lease so the inventory of used cars will rise.  As a result, used car prices are expected to fall.

Interested to hear what other industries COBF members think are currently over-earning because of cyclical tailwinds or one-time occurences (i.e. the freight car industry during the fracking boom).



Liberty

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Re: Which industries are currently over-earning?
« Reply #1 on: February 13, 2018, 05:42:22 AM »
I think a lot of parts of the healthcare industry in the US are over-earning. The parts that are making things more efficient and keeping costs down are probably safe, but the parts that have seen rapid price inflation for decades probably will get on a new trajectory at some point.
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writser

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Re: Which industries are currently over-earning?
« Reply #2 on: February 13, 2018, 01:00:56 PM »
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.

John Hjorth

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Re: Which industries are currently over-earning?
« Reply #3 on: February 13, 2018, 01:39:16 PM »
I think a lot of parts of the healthcare industry in the US are over-earning. The parts that are making things more efficient and keeping costs down are probably safe, but the parts that have seen rapid price inflation for decades probably will get on a new trajectory at some point.

Example: NVO 2017 ROE 80 percent. [Perhaps some board member may wonder why it's still not possible to see my shoe soles covering my butt with this one.]
« Last Edit: February 13, 2018, 01:46:11 PM by John Hjorth »
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DTEJD1997

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Re: Which industries are currently over-earning?
« Reply #4 on: February 13, 2018, 02:13:50 PM »
Education is definitely "over earning".

Foreign Tuffett

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Re: Which industries are currently over-earning?
« Reply #5 on: February 13, 2018, 04:12:57 PM »
US healthcare: healthcare is such a big chunk of GDP and everyone hates the current system; at some point parts of the industry are going to have their margins squeezed

US Airlines: making more money than ever before, but ULCCs are going to crash the party eventually

Auto OEMs: auto financing in the US has become very loose and the manufacturers have been temporary beneficiaries

Low quality enclosed shopping malls, specifically class D and C and some class B malls

I also think many Chinese companies are over earning based on the excess leverage and structural imbalances rampant in the Chinese economy. I recognize that this is a macro view that most value investors probably don't share (typical value investor: "I don't have a macro view on Chin.......but everyone knows the Chinese economy is going to grow alot and [insert big Chinese tech company here] will be a big beneficiary.")

Nell-e

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Re: Which industries are currently over-earning?
« Reply #6 on: February 13, 2018, 04:33:27 PM »
Another thing with the airlines is that there's a pilot shortage without a quick fix.

vinod1

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Re: Which industries are currently over-earning?
« Reply #7 on: February 13, 2018, 04:56:49 PM »
Consumer Packaged Goods Industry.

Not for cyclical reasons but more for structural changes. Many of the changes brought about by Internet are chipping away at almost all of the advantages these companies used to enjoy.

In addition these guys have increased margins considerably over the last 20 years compared to their previous 50 years. It seems likely that margins would be significantly compressed for many of these companies over the next couple of decades.

Vinod
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BPCAP

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Re: Which industries are currently over-earning?
« Reply #8 on: February 13, 2018, 07:48:19 PM »
Semiconductors and airlines

Nell-e

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Re: Which industries are currently over-earning?
« Reply #9 on: February 13, 2018, 08:58:56 PM »
guns and ammo / NFL football

Also sooner or later, it looks like medical supply industry is going to get hit:

https://www.wsj.com/articles/amazons-latest-ambition-to-be-a-major-hospital-supplier-1518517802


« Last Edit: February 13, 2018, 11:07:18 PM by Nell-e »