Despite starting 2021 on a cautious note, markets have rewarded investors reasonably well this year. The S&P 500 index has given a 28% growth this year, compared with a compounded annual growth rate of 14% it has registered since 2010.
While energy and retail stocks emerged the top performers as they bounced back post the pandemic slump, technology remained rock-solid on the back of robust digitization of industries. Investors who identified the initial cues and entered into stocks like Devon Energy (NYSE: DVN) and Continental Resources (NYSE: CLR) were rewarded handsomely.
As we approach 2022, we are at similar crossroads as last year, with fears surrounding the Omicron variant, leading to an uptick in market volatility. Adding to that is the rising Personal Consumption Expenditures – a metric that measures inflation – which has witnessed the sharpest increase in almost four decades in December.
So what industries should be on your watchlist this year? While it’s hard to predict market trends accurately, let’s take a look at a few areas that hold promise for the upcoming year.
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Artificial Intelligence
With the pandemic forcing companies to lay off staff and optimize costs, the requirement for AI-based solutions has seen robust demand in the past two years. The trend is likely to continue into 2022, as both companies and governments jack up their investments into artificial intelligence.
As per the MarketsandMarkets research report, AI market is forecast to grow at a CAGR of around 40% between 2021 and 2026. By 2026, the research note predicts that the industry would reach a whopping size of $309.6 billion. Investors could either consider watching AI-focused stocks such as C3Ai (NYSE:AI) and UiPath (NYSE:PATH), or go for safer bets in the chip manufacturing space such as Micron Technology (NASDAQ:MU) or NVIDIA (NASDAQ:NVDA).
Real Estate
Despite an uptick in mortgage rates since the beginning of this year, they continue to be relatively low for homebuyers. Analysts expect the impact of the pandemic on the rates to be less severe this year, meaning it is only likely to continue north in 2022. This makes real estate investment trusts (REITS) an attractive investment option, especially one that is low-risk with high dividend yield.
Within REITs, the wireless communications tower business stands out due to the benefits associated with 5G ramp-up. The predictability of cash flows within this business makes it a darling among Wall Street analysts. Crown Castle International (NYSE: CCI) and American Tower Corp (NYSE: AMT) are both expected to capitalize on the development and spend on 5G going into mid-2022.
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Cyber security
This should not come as a surprise, given the number of data breaches we have seen recently, as well as an understanding of what’s at stake. Data is gold; analyzed data is polished gold. And companies are today collecting way more data than they ever did in the past. It, therefore, creates a huge responsibility to protect this data from theft, even at the expense of making huge investments for the same.
According to Gartner, the global information security market is seeing a CAGR of 8.5% between 2018 and 2022. The trend is expected to continue and accelerate due to the rising number and complexity of cyber threats. There has been an increase in cyber attacks in 2021, compared to last year, including a few high-profile ransomware attacks. These attacks are estimated to witness double-digit growth over the next few years.
The cybersecurity space is today highly completive with plenty of companies offering a range of solutions including CrowdStrike Holdings (NASDAQ:CRWD), Zscaler (NASDAQ:ZS), Palo Alto Networks (NYSE:PANW) and Akamai (NASDAQ:AKAM). Investors could also look into SentinelOne (NYSE:S), which went public only a couple of months back.
Energy
Energy requirement is a constant; the dichotomy is only in the source. As we saw earlier, despite the enthusiasm over green energy and carbon-neutral conversion, those invested in oil and gas stocks continued to reap benefits. While some of this was attributable to a bounce back from the COVID dip, it appears that the shift to a green economy could take longer than we anticipated.
Green energy stocks mostly struggled last year, as solar and wind infrastructure continues to contribute only a modest 10% of the overall energy requirement. In 2022, green energy stocks are expected to see a recovery, helped by investments into wind generation, solar panels and EV infrastructure. Sunrun Inc. (NASDAQ: RUN) and ChargePoint (NYSE: CHPT) offer some promise in this sector.
Meanwhile, oil and gas companies are likely to continue seeing interest as they cut down on infrastructure, and use funds to increase dividend payout and pay off debts. The reduction in infra spending could lead to a further increase in oil prices, which could, in turn, reflect in the stock prices. Investors should keep a close watch on stocks like Occidental Petroleum (NYSE: OXY), Chevron (NYSE: CVX) and Devon.
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