However, we need to define what we mean by the biggest potential. We mean stocks that give the potential for good returns in terms of percentage returns on investment. We will not include sectors that necessarily pay the highest dividends as this will be a bit too limiting.
Also, there are alternative ways of getting your investment funds into these sectors apart from buying the stocks directly. You may buy options or even get into funds that provide sectorial exposure so as to maximize returns with as little risk as possible.
So without further ado, here are the three stock sectors with the biggest potential in 2020.
Advances in various aspects of healthcare in the last three years have made this sector a pretty hot one. Some people call these the biotechnology stocks. They are mostly listed on the Nasdaq. This is where you will find stocks such as EDITAS, CRSP Pharmaceuticals, Vertex Pharmaceuticals and Acadia Pharmaceuticals.
Companies in this sector have been involved in ground-breaking research into areas such as genome editing, which aims to use gene-based therapies to treat previously incurable ailments such as sickle cell disease and cystic fibrosis. Other companies are revolutionizing treatments and diagnostic processes, or developing new medication to replace existing ones.
Traditionally, these companies usually see bursts of growth in their share price whenever they make a major product breakthrough or get a huge approval from the Food and Drug Administration (FDA) in the US. With companies such as EDITAS already in advanced clinical trials, watch out for big announcements from some of the biotech stocks that will make them quite attractive to investors.
Semiconductor Stocks (Chipmakers)
Chipmakers did not have a good 2019 as a result of the US-China trade war. However, a key event this year may change everything for chipmakers. The Bitcoin halving event is due to come up in May 2020. This will reduce by half, the yield for every Bitcoin block that is mined on the blockchain. Already, Bitcoin has been mined by more than 85%. Some of the already mined Bitcoin has either been stolen, being hoarded or lost forever.
Therefore, with very little BTC left to mine, and with cryptocurrencies forecast to have a generally bullish year, we feel that there will be a race to develop even more advanced mining rigs to grind out the last bits and pieces of Bitcoin that there ever will be. The race to develop the most advanced miners using graphic cards from chipmakers could be on. With chipmaker prices at the lower end of the rack, there could be good opportunities in these stocks in 2020.
Just take a look at what some of the tech companies are already doing on the Nasdaq and S&P 500 in the first two weeks of 2020 and you will know why this category of stocks has been added to this list. The technology companies listed in the S&P 500 have doubled the returns on the market in the last 5 years, posting a healthy 109% returns and trumping nearly every other sector.
In fact, tech stocks returned 40% in 2019 alone. In contrast, energy stocks have dropped more than 30% in the last 5 years! So why should tech stocks not be on the top 3 sectors with the biggest potential in 2020?
Picking Stocks in the Sectors with Biggest Potential
This is not a specific buy and sell recommendation, but rather a guide on what to look for when researching stocks from these sectors to invest in. Ideally, you need to look at the earnings reports of your potential interests to see if they are doing the following:
- Are they increasing sales and revenue over time?
- Are they having healthier operating margins when compared to other companies in the same sector? Operating margin is derived by dividing the year’s income by the total sales figure for the quarter, or on an annualized basis.
Ok, let’s cut out all the terminologies that may confuse beginners. You need to check to see if the company you want to invest in is actually making larger amounts of money or not. What is the returns on investment like? In the case of biotech stocks, are you attracting investment and meeting the milestones for a research or a clinical trial?
These are the questions to answer so as to position yourself in the stocks from these three sectors that can turn your finances around.