Bloomberg Market Specialists Keith Gerstein, Jia Ling Lai and William Collins contributed to this article. The original version appeared first on the Bloomberg Terminal.
Background
Companies worldwide have grappled with supply chain disruptions, inflation, international regulations and Russia’s invasion of Ukraine in 2022. Given these challenges, how they choose to invest capital can vary by industry. These industry-related trends will likely determine which opportunities are most promising for investors.
The issue
Here are how different industries such as energy, banking and technology are currently utilizing their capital.
Oil and gas
Oil and gas stocks have been on a tear as consumers are paying more at the pump this year. As of 06/13/2022, Year-to-Date, the best-performing stock in the benchmark is Occidental Petroleum Corp., which gained 110.17%.
The consensus analyst estimate for Occidental’s capital expenditures was $4.2 billion as of early June — an increase from the previous two years but less than half of capex levels 10 years ago.
Banking
In the banking sector, JPMorgan Chase & Co. and other major banks made gains in investment banking revenue last year. The New York-based bank’s advisory and underwriting fees jumped to $12.5 billion in 2021, up 32% from the year before.
But that growth in fees ended in the first quarter of 2022. In April, JPMorgan reported that investment banking fees fell 31% from the first quarter of 2021 due to contributions from inflation, oil prices and the war.
JPMorgan, Bank of America, Goldman Sachs and Morgan Stanley are all deploying capital to retain talent to ensure longer-term profitability. Estimates for JPMorgan’s 2022 outlay climbed last year and in the early months of this year. Analysts expect compensation spending for the consumer unit to surpass corporate in 2022 and 2023.
Chinese tech
China’s clampdown on tech companies last year affected sectors differently. Many traditional consumer tech stocks plummeted 50% or more in the 12 months through May, while some stocks in other industries — such as semiconductors — posted gains.
For many companies, increasingly rigorous government regulations and taxes are difficult to escape. For example, China’s ban on for-profit tutoring severely influenced Beijing-based TAL Education Group. TAL reported a 2.3% drop in revenue for its 2022 fiscal year, its first decline since going public in 2010. For fiscal 2023, analysts anticipate a further 75% plunge.
Electric vehicle supply chain
Shanghai-based IM Motors, backed by Alibaba Group Holding Ltd., started producing electric vehicles in March. BloombergNEF forecasts that, across the industry, passenger EV sales will reach more than 10.6 million this year, a significant increase from 6.5 million in 2021.
Tesla Inc. — the leading producer of EVs — built 936,222 cars in 2021, driving GAAP net income available to common shareholders up 700%, to $5.5 billion. However, Tesla shares have bounced around this year due to questions related to Chief Executive Officer Elon Musk’s bid for Twitter Inc., the temporary shutdown of Gigafactory 3 in Shanghai’s Covid‐19 lockdown, and the broader selloff of tech stocks.
Chip investment
The global semiconductor shortage has fueled unprecedented investment by chipmakers to expand production and achieve technological breakthroughs.
As a result, the two largest contract chipmakers, Taiwan Semiconductor Manufacturing Corp. and Samsung Electronics Co. have ramped up capex. Hsinchu, Taiwan-based TSMC spent a record $30 billion on capex in 2021, and Suwon, South Korea-based Samsung spent $41 billion.
The United States recently created a $52 billion federal program to raise domestic chip production, with both Samsung and TSMC seeking to participate. This record spending isn’t just directed at boosting the production of existing chips — it also reflects strategic moves by industry heavyweights.
While the huge capex has dented short-term performance, analysts estimate that TSMC will have 33% growth in semiconductor revenue this year, while Samsung will have 27%.
Brokers can’t seem to agree on how long the current chip shortage will last. But analysts estimate that TSMC will increase capex by 39% in 2022, while Samsung’s will decrease by 1%.
Tracking
Consider the best and worst performers in the S&P 500 index:
Run {SPX <Index> MRR <GO>} for the Member Ranked Returns function.
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