Amid the electrification of transportation, much higher-than-expected consumer spending, and the energy revolution, there are many thriving industries in which to invest at this point. Throw in the strength of the travel and restaurant sectors, along with the infrastructure names that are getting ready to receive a great deal of money from Washington, and you get a good idea of many of the most promising industries that I will discuss in this article.
Also worth noting is that the Street appears to be getting used to the idea that the U.S. economy is probably not going to fall off a cliff and is unlikely to be derailed by the additional percentage point of interest rate hikes that the Fed is likely to implement this year. That realization, along with the better-than-expected quarterly results of many companies during the upcoming earnings season, should propel the stocks of many of the most promising industries much higher in the coming weeks and months.
This sector has been written off for dead by many analysts and pundits. But the fact is that many businesses and consumers are looking to transition to EVs, creating a huge amount of demand for vehicles. Demand for EVs will further increase due to new tax credits implemented this year in the U.S., along with bans on selling gasoline-powered vehicles in the EU and a number of American states starting in 2035.
Moreover, EVs tend to be fairly expensive, so their buyers will be rather wealthy. As a result, EV purchasers will be able to afford many subscriptions for services from automakers, such as fast charging, semi-autonomous driving, data monitoring, advanced security systems, and the latest software updates. Tesla (NASDAQ:TSLA), for example, is already charging subscription fees for its chargers and its semi-autonomous driving systems. Further, EV makers can generate high-margin revenue from clean-energy regulatory credits, which Tesla is already doing on a large scale.
Given all these points, it makes sense for the valuations of EV makers to be much higher than those of traditional automakers.
Showing that tens of millions of Americans are still enjoying eating out frequently following the termination of the anti-coronavirus lockdowns, the amount of money spent at restaurants soared 15% year-over-year during the holiday season, Mastercard (NYSE:MA) reported.
Further, a number of casual dining chains unveiled strong third-quarter results last year. Darden’s (NYSE:DRI) comparable sales climbed 7.3% year-over-year in Q3, and the company raised its 2022 earnings per share outlook to $7.60-$8 from its previous guidance of $7.40 to $8.
Shake Shack’s (NYSE:SHAK) top line soared 17.5% YOY, while its EBITDA, excluding certain items, came in at a significant $19.5 million.
Cracker Barrel’s (NASDAQ:CBRL) revenue climbed 7% YOY for its Q1 that ended in October, while its operating income came in at a healthy $23.6 million.
Finally, Chuy’s (NASDAQ:CHUY) revenue rose 4.6% YOY, while its “restaurant-level operating profit” soared 18.1% versus Q3 of 2019 to $15.8 million.
The 7.6% year-over-year jump in holiday spending reported by Mastercard bodes very well for the retail sector going forward.
As usual, however, there will be winners and losers within the retail sector. I would advise investors to focus on higher-end retail names that are not intensely focused on the categories in which Americans spent a great deal of money during the pandemic, like consumer electronics, home improvement, and jewelry.
Higher-end apparel retailers are better than lower-end names because wealthier shoppers have been much less hurt by inflation than working-class and poor consumers.
With optimism about Europe’s economic outlook improving after the EU’s December inflation data came in below expectations recently, the shares of European luxury retailers have been rallying. That trend could continue for some time, particularly if the continent’s energy prices keep dropping and an end to the Russia-Ukraine War looks more likely. Among the best names in the sector are Hermes International (OTC: HESAY), LVMH (OTC:LVMUY), and Burberry (OTC: BURBY).
In the U.S., Macy’s (NYSE:M), Nordstrom (NYSE:JWN), and Dillard’s (NYSE:DDS) are among the names I’d consider.
Solar energy is booming in the U.S., the EU, China, Japan, and many other nations. In America, new, more generous tax credits that will be in place for a decade have kicked in starting in January, and tariffs are no longer much of a factor after the Commerce Department allowed several Chinese companies to import solar panels from neighboring countries without paying high tariffs. And, Illustrating the extent to which solar is growing in the U.S., from January 2022 to November 2022, the electricity generated by solar soared 26% versus the same period a year earlier; in October, the increase came in at 31.7%.
China and the EU have taken measures that will greatly expand the use of solar energy in those jurisdictions. China’s solar installations soared 137% in the first half of 2022, while the EU’s total solar additions reportedly jumped 47% YOY in all of 2022. For its part, Japan is expected to install around eight gigawatts of solar panels this year.
Also worth noting is that, amid high electricity bills and fears about storms, rooftop solar installations in the U.S. jumped 40% year-over-year in the second quarter of last year, and total rooftop installations for 2022 were expected to reach a record 5.3 gigawatts.
The electrification of transportation should accelerate the demand for solar going forward as consumers and companies look for additional ways to power their electric vehicles.
It appears that, during the pandemic, when few indoor recreation activities were available, many Americans became enchanted with outdoor recreation. Intensifying that trend further is Americans’ increased emphasis on physical fitness in the wake of the pandemic.
A number of companies focused on selling outdoor recreation products reported impressive third-quarter financial results.
For example, Yeti (NYSE:YETI), which specializes in such products, noted that its Q3 top line had soared nearly 20% versus a year earlier, while its operating income was little changed YOY, coming in at a hefty $68.5 million.
Of the 16 analysts who cover the stock, 11 have “buy” or equivalent ratings, and none have a “sell” or equivalent rating.
Also reporting strong Q3 results was Dick’s Sporting Goods (NYSE:DKS). The retailer’s comparable sales climbed 6.5% year-over-year while it increased its full-year earnings per share outlook to $10.50-$11.10 from $8.85-$10.55.
With the casinos in the Chinese region of Macau reopening, Las Vegas set to boom, and a number of online sports betting companies poised to become profitable, 2023 should be a great year for casino/online betting stocks.
Macau recently terminated its quarantine requirements. Consequently, Wall Street analysts are generally optimistic about Macau casinos’ ability to attract much more revenue this year than in 2022. JPMorgan views Las Vegas Sands (NYSE:LVS), Wynn Resorts (NASDAQ:WYNN), and Melco Resorts (NASDAQ:MPEL) as good picks in the current environment.
Meanwhile, business travel is returning to Las Vegas, and the city is hosting multiple very popular sporting events this year, including the NCAA Basketball Tournament and the Formula 1 race. That should benefit more Las Vegas-focused names, including Caesar’s Entertainment (NASDAQ:CZR) and MGM (NYSE:MGM).
Both CZR stock and MGM stock should also be boosted by profitable online betting operations this year. CZR’s online casino operation was in the black in October, while MGM’s sports betting joint venture, BetMGM, is expected to generate positive EBITDA this year.
As I noted in a previous column, “With the federal government prepared to spend a great deal of money on infrastructure and the onshoring boom starting, it’s a good time to search for infrastructure stocks to buy.”
Among the big winners should be companies that provide raw materials used in construction, such as Vulcan Materials (NYSE:VMC) and Martin Marietta (NYSE:MLM). Freight train operators that carry the materials, including Union Pacific (NYSE:UNP), Canadian Pacific (NYSE:CP), and Caterpillar (NYSE:CAT), which makes construction equipment, should be lifted by the federal government’s infrastructure spending boom.
Other winners include companies focused on expanding electrical output and improving the electrical grid, including Eaton (NYSE:ETN), GE (NYSE:GE), and American Superconductor (NASDAQ:AMSC) along with internet service providers, such as AT&T (NYSE:T) and Charter (NASDAQ:CHTR).
Also likely to get big boosts are companies focused on water infrastructure, such as Evoqua Water Technologies (NYSE:AQUA) and hydrogen, including Plug Power (NASDAQ:PLUG) and Bloom Energy (NYSE:BE).
On the date of publication, Larry Ramer held long positions in PLUG, AMSC, and MGM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Consumer Discretionary, Automotive, Casino, Construction, E-Commerce, Electric Vehicles, Energy, Industrial, Renewable Energy, Restaurant, Retail, Solar, Travel