Each year, the Equity Research Group’s individual sector groups—consumer; financial services and technology; global industrial infrastructure (GII); global services; healthcare; and technology, media, and communications—provide an outlook for the year ahead. At the same time, each group compiles a list for the coming year of preferred stock ideas.
Some of the sector trends discussed in this year's "Top Stock Recommendations" report include the following.
Looking into 2017, William Blair consumer analysts believe multiple cross-currents exist. On the positive side, the potential for income tax rollbacks combined with more palatable valuations for consumer discretionary stocks (below their five-year average relative valuation level for the first time since late 2014) could bode well for 2017. On income taxes, while the historical relationship between consumer spending and income taxes is quite low at -0.15, President-elect Trump’s income tax revisions as outlined in his campaign would eclipse all prior cuts and could represent a positive wildcard.
According to our financial services and technology analysts, the global economy continues to be mixed. They believe the global economy will likely be steady at a subpar growth rate in 2017, but risks continue to be heightened, partly because of geopolitical strife. Secular growth of electronic payments remains strong, online payments are growing nearly 20%, and mobile payment growth is accelerating. They believe market volatility should drive better trading activity and that higher interest rates would benefit the online brokers.
In the global industrial infrastructure sector, our multi-industry analyst anticipates that the industrial grind is likely to continue in 2017 for most multi-industry global industrials, as global GDP growth is expected to remain challenged, and industrial end-market demand is expected to remain subdued. William Blair’s industrial distribution analyst remains constructive on nonresidential and new housing starts, but rising interest rates may lead to moderating growth.
According to our global services analysts, the performance of any stock picks over the next year is likely to be significantly influenced by policy changes in the United States, more so than in prior years. While there are a variety of potential changes that are difficult to predict, they believe there is a fairly high degree of likelihood that 1) interest rates increase, 2) the U.S. statutory tax rate declines, and 3) wage inflation and talent shortages increase, with the potential for the unemployment rate to reach record-low levels if the labor market continues to grow even at its current pace for the next two to three years.
Our healthcare analysts believe that with the incoming Trump administration, we are entering a period of significant uncertainty within healthcare. It is likely that there will be at least a partial, if not full repeal, of the Affordable Care Act and a messy replacement process. They believe it will take a significant amount of time for Congress to finalize replacement of the current law, which will likely cause volatility across providers, biopharma, and the pharma supply chain.
In technology, our digital media and internet analyst believes that 2017 could be an inflection point for over-the-top (OTT) video consumption due to increasing adoption from agencies and brands. While it is no secret OTT video will continue to grow, he believes the fact that major live-sporting events, namely the Olympics and NFL, showed declining linear-viewership in 2016 could be a sign that internet video consumption is poised to break out in 2017. William Blair’s enterprise and cloud infrastructure analyst believes that cloud computing represents a generational shift in the IT industry. While the traditional enterprise data center will not disappear anytime soon, the gravitational pull from public clouds is hard to overstate given their agility and efficiency advantages and the appeal of an outsourced IT model for many customers whose core competency is in other areas.
For more information or a copy of our "Top Stock Recommendations" report to find out which specific stocks the analysts expect to be top performers, please contact your William Blair representative.