CRSP - 10 Sectors Likely To Generate Good Returns In The Next Decade

Summary

• This article is the first of a 3-part series discussing 10 sectors that could provide high returns in the future.
• This first part covers Artificial Intelligence (AI) and Healthcare Technology, highlighting companies and potential growth opportunities.
• We discuss why you should invest a part of your portfolio in high-growth companies and how this could benefit every investor.
• We discuss the need for risk management and diversification when investing in high-growth sectors. In addition, this helps with generating above-market returns over the long run.

Introduction

In this 3-part series, we will discuss 10 sectors, which we believe could provide wonderful returns in the future. In the first part of this series, we will take a deep dive into 2 of the 10 sectors and we will provide some information and companies that are likely to benefit from the potential in these sectors. In addition, we will discuss how one should allocate his capital to these market trends and how to limit the risk, but with the ability to gain tremendously if one of these companies is successful.

Why Invest in High-Growth Companies

Let’s get straight to the point. You are reading this article because you want to generate significant returns that beat the market. The sectors we will discuss in this article have the potential to generate life-changing returns. Of course, some of the companies we mention might turn out to be losers, but you probably only need to hit 1/5 companies right to be profitable (considering an even allocation of capital to each of these positions).

That said, some of the companies might get taken out as big tech players or big pharma firms decide to buy themselves in, which could drastically lower your return over the long term, as this would pretty much erase the opportunity to get a 10x+ return. It is important to mention that high-growth investing involves significant risk. Therefore it should only be an addition to one’s portfolio. We don’t advise investing 100% of your portfolio in these types of companies (valuation matters), this has been proven in the year 2022.

Furthermore, if you bought high-growth sectors close to the top in 2021 you are likely over 50% underwater. We believe it is important to make the right risk/reward allocation for your style of investing and it is crucial to keep an eye on each of the companies you invest in, as bad management or misses on guidance can be detrimental to your returns and thus it will be important to pivot at the right time if the investment thesis changes.

As we want this article to be valuable for all types of investors, we will not only talk about the highest risk/reward returns, but we will also mention big companies that could conquer these industries in the future. After the latest ChatGPT hype, a lot of people were looking for how to invest in it. Well, Chat GPT is owned and made by OpenAI, but OpenAI’s biggest investor is Microsoft ( MSFT ), which owns 49% of the shares.

In the chart below you can see all the market trends that we will cover in this series and their corresponding 10Y expected CAGRs from 2020-2030. On average these industries will grow between 18% and 24% per year, but, as you can see below, some of these are likely to experience far superior growth over the same time span.

The Industries that can Generate Life-Changing Returns

In this first part of this series, we will cover 2 market trends and some of the companies that are active within these sectors. In addition, we will talk about how these companies can benefit from increasing interest and growth within these industries. The sectors that we will cover in this part are:

• Artificial Intelligence
• Healthcare Technology

But first of all, what is important to consider when evaluating the potential of such a high-growth industry? Some of the key points that one should ask themselves when evaluating an industry are:

• Market Trends: What is the expected growth for the industry and how is it applicable in other industries? What is the usage for other industries?
• Adoption Rate: How fast can the new technology be adopted by other businesses or by the general public? How likely are they to adopt new technology? Are they open to technological advancement in their specific industry?
• Risks and Challenges : What are the challenges that might arise when investing in a particular industry? These can be regulatory issues, but there are multiple other challenges that might exist as well.
• Competition and Barriers to Entry : Is it feasible to enter this market? For example, should we invest in a new EV company in a highly competitive market or would Tesla ( TSLA ) be a better investment opportunity? Or should we try to compete with Open Ai’s ChatGPT and Google’s ( GOOGL ) DeepMind?

In addition, there are plenty of other things one should consider before investing in a company, but once one has evaluated the above points one can start to look deeper into the fundamentals of a company and take a deep dive at which companies might become the leader in that industry in the future.

Artificial Intelligence and its Possibility to Change Multiple Industries Forever

Artificial Intelligence is the first hyper-growth sector we will discuss in this article. With a CAGR between 25%-30%, this is one of the sectors with the highest expected growth and the recent hype about ChatGPT makes it easier to understand why that’s the case.

So what might drive the growth of AI in the future? First of all, AI is expected to grow exponentially, and we are seeing an increasing demand for optimization and automation in multiple industries. This in addition to the growing ability of AI systems to handle easy and more complex tasks makes it a very interesting market trend that we should keep an eye on for the next decade. AI helps with increasing efficiency, accuracy, and can even be useful in decision-making processes, which would make it useful in a variety of different industries. A great example of AI that everybody has used at least once, is Google’s Google Translate. This shows that AI is already more deeply integrated with society than most people are even aware of. We believe that this trend will continue in the future.

When we take a look at the applicability of AI, there pretty much isn’t an industry where AI can’t be used. AI can be used in a wide range of industries, for example, healthcare, finance, manufacturing, and retail, just to name a few. Ai can be used to develop personalized treatment plans, risk management, fraud detection, and even investment decision-making, autonomous vehicles, and customer service.

These are just a few things AI could be useful for. Let’s take a look below and ask ChatGPT what a Seeking Alpha is. As you can see below, it did pretty well. We are also looking forward to see how successfully MSFT will be able to integrate ChatGPT into Bing as they execute their plan. This could become a serious threat to GOOGL's search engine if they are successful in integrating ChatGPT into Bing.

We believe that AI could be tremendously beneficial for various industries. However, some ethical and privacy questions might arise. As can be seen in the following article from The Guardian, where they found out that Amazon’s Alexa secretly recorded a private conversation . Therefore, it will be crucial to carefully develop and deploy AI. Thorough testing and significant responsibility are required from the upcoming leaders in this market. Now let’s take a look at the adoption rate. AI can be adopted quite quickly in most cases. ChatGPT reached over 100 million users in just 2 months.

This shows that people see the use-case in certain AI products. In addition, it seems like people fairly easily adapt to the use of AI in their day-to-day life. As with every revolutionary invention, people might be wary in the beginning. In 1989, not that many people expected the internet to become something big. Right now, we can’t even imagine a life without it. The same path might be followed with AI and its adaptation. As of now, it looks like it will be adopted a lot quicker than the internet in its early days. Virtual Assistants like Amazon’s ( AMZN ) Alexa, and smart home devices, like video doorbells and smart locks have been adopted all over the world and fairly quickly.

Now let’s take a look at some companies we believe could become a leader in AI in the future. There are multiple companies that are already deeply integrated with the industry and society. These companies are Microsoft ( MSFT ), Google ( GOOGL ), Amazon ( AMZN ), IBM ( IBM ), and Baidu ( BIDU ), just to name a few.

There are plenty of analyses on these large caps on Seeking Alpha, so we won’t go too much in-depth here. For example, this article from a fellow contributor is an interesting piece on MSFT and GOOGL about AI-powered search. If there are any specific companies you want to see us do an analysis on from an AI perspective, please let us know.

A couple of smaller companies that we would like to highlight in this sector are:

• UiPath ( PATH ) - UiPath is a world leader in the field of Artificial Intelligence. PATH offers a comprehensive platform for automating various business processes using AI and RPA (Robotic Process Automation) technology. They pretty much offer solutions to automate routine and monotonous tasks that were previously being performed by humans. They have revolutionized the way businesses operate, by helping companies save time, money and most importantly, letting employees focus on more important tasks that AI can’t do (yet). In short, they help organizations with streamlining their operations, increase efficiency, and productivity.

• Appen ( APPEF ) or (APPXYY) - Is a small technology company that provides data and language solutions to organizations all over the world. They offer a wide range of services like data collection and transcription. These services help organizations to further train artificial intelligence models and develop natural language processing systems (similar to ChatGPT). They work with clients across a variety of industries, including technology, automotive, finance, and government.

• In simple words, Appen is in the business of helping companies to improve their AI applications. They do this by providing high-quality data and language expertise, which enables companies to make better-informed decisions and create better products.

• Appen has multiple big corporations as clients, such as Pinterest ( PINS ), Adobe ( ADBE ), Salesforce ( CRM ), Best Buy ( BBY ), Oracle ( ORCL ), Boeing ( BA ), Airbus ( EADSF ), multiple FAANG companies, and many more, which can be seen in the image below.

• Motional – previously named nuTonomy is an MIT Spin-Off, which got acquired by Aptiv ( APTV ) in 2017 and is now part of a joint venture between Aptiv PLC and the Hyundai Motor Group ( HYMTF ) called Motional. Motional is a leader in autonomous vehicle technology, offering software solutions for self-driving cars. They have partnered with major Ride-Hail networks, such as Uber ( UBER ), Lyft ( LYFT ), etc.

• Their goal is to build Level 4 autonomous vehicles that will change how the world moves. They are building robotaxis. They recently announced a partnership with Lyft for their IONIQ 5. “The IONIQ 5 robotaxi is an all-electric, SAE Level 4 autonomous vehicle ((AV)) that can safely operate without a driver. The robotaxi is powered by Motional's AI-first autonomy stack, the product of decades of innovation and millions of miles of testing.

Healthcare Technology

The second high-growth opportunity we will cover is Healthcare Technology. The healthcare industry is expected to grow exponentially due to an aging population and increasing demand for personalized and efficient medical treatments. The use of technology in healthcare, such as telemedicine and wearable devices, is also contributing to growth. We have seen significant improvements already, Next-Generation Sequencing costs have declined significantly over the last few years, which made molecular diagnostic tests more feasible and is turbocharging our understanding of tumor biology. This is a unique technique that could revolutionize the healthcare industry sooner rather than later.

Furthermore, imagine if a company develops a cancer treatment. It's not hard to imagine that this company could quickly become a multi-billion dollar company. Within the healthcare industry, there are multiple of these types of opportunities, which as an investor could benefit you greatly. With a CAGR between 15 and 20%, this is one of the 10 industries which is a bit more certain to experience significant and continuous growth compared to, for example, the blockchain industry, which has a more unpredictable growth trajectory.

The adoption rate in the Healthcare Industry can be quite long. As it is a difficult sector and each drug or treatment could have significant implications on a patient's life. For that reason, it is crucial to make sure everything is safe for use. When considering vaccines or certain medicines it is crucial to have a deep understanding of the possible side effects a certain drug or treatment could have on the patient. This is why the FDA process can be very lengthy and it can take a long time for a product to come on the market.

In general, technologies that are easy to use, more cost-effective, and offer clear advantages over existing solutions will be more easily adopted by the general public. While these incentives translate readily into rapid growth and technological advancement, there is one obvious check to the speed of innovation in the field of healthcare: regulatory compliance. We could argue that regulatory concerns are by far the biggest threat that can hold back the adoption of certain treatments and drugs, and that's for a good reason.

In addition, the barriers to entry are very high within this industry. Developing a new drug or create a new treatment and isn't a contained one-time expense, the process of developing something new can take 10+ years and still haves a low chance of actually succeeding.

This is why it is hard to compete with major firms like Roche (SWX: ROG ), Johnson & Johnson ( JNJ ), Siemens Healthineers ( SEMHF ), Medtronic ( MDT ), GE HealthCare ( GEHC ), Pfizer ( PFE ), Moderna ( MRNA ), Merck ( MRK ), AstraZeneca ( AZN ), Novartis ( NVS ), Novo Nordisk ( NVO ), Eli Lilly ( LLY ).

Still, we will take a look at some smaller companies that could revolutionize this industry. They often work together with a big company to fund or partially fund the process. In addition, once these smaller companies are close to succeeding they often get bought out by a major corporation.

A couple of smaller companies that we would like to cover shortly are:

• Grail (privately held), with Illumina ( ILMN ) as a parent company - Cancer is a leading cause of death across the globe. This is mostly due to the fact that there aren't any accurate screening methods for most life-threatening cancers. This is where Grail comes in.
• Grail is one of the leaders in cancer genomics and is focused on the early detection of cancer tumors. The way they do this is by developing innovative blood tests for cancer. In 2020 Illumina tried to buy GRAIL outright for $7.1b, but currently, the deal is under investigation by both the European Union and the United States , due to concerns that this might hurt competition.

• CRISPR Therapeutics ( CRSP ) - CRISPR is a biotechnology company that develops gene-editing technologies. They are probably the most widely-known company that uses the CRISPR-Cas9 gene editing technology. This technique is still under further development and the company is making significant improvements to reduce risk. Recently one fellow contributor made an interesting write-up about this company, which you can read by clicking here .

• The company has an impressive pipeline, which you can see on the company website. One of their main competitors is Prime Medicine ( PRME ), which only recently did its IPO in October of 2022. The company recently acquired Magellan Rx "Uniting Pharmacy and medical drug management expertise". This is another company worth keeping an eye on. Both CRSP and PRME can become multi-baggers in the future.

• Owlet Baby Care ( OWLT ) - Owlet Baby Care is a small-cap company (40m market cap) that offers smart baby monitors and wearable devices for monitoring the vital signs and sleep patterns of infants. Although we aren't sure how this company will continue moving forward due to the significant losses and only $23m in cash and cash equivalents, it remains an interesting prospect and one to keep on the watchlist.

Closing Words

First of all, thanks for reading this first part of our 3 part series on "10 Sectors Likely To Generate Good Returns In The Next Decade ". We hope you enjoyed it. We are looking forward to publishing the second part of this series shortly, in which we will probably cover 4 different industries. Which of the following industries would you like to see us cover next?

We believe investing in the future could possibly generate significant returns in the future. However, there aren't any guarantees and the companies covered in this article might not all succeed. Furthermore, there are plenty more companies we could have covered, but this article would have become far too lengthy. In addition, we are looking forward to covering some of these companies more in-depth in the future.

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