2020 has been a bizarre year for stocks. While many sectors continue to struggle with the impact of the coronavirus pandemic and recession, the tech sector has delivered big returns.
On the Oct. 29 edition of “The Wrap” on Motley Fool Live, host Jason Hall engaged Motley Fool contributors Danny Vena and Daniel Sparks in a conversation about the years ahead. Which sectors are primed to deliver for investors? Check out the video below (or scroll past for the transcript) for the insights they offered.
Jason Hall: Danny Vena, I would like you to tell me what you think the best sector over the next five years is going to be.
Danny Vena: It’s kind of a toss (up) for me. I got two, I’ve got e-commerce and I’ve got cloud computing. In the case of Amazon (NASDAQ:AMZN), you win with both. I would say that cloud computing probably has a lower ceiling than e-commerce does. E-commerce only now represent about 11% of total retail worldwide. I think it can go much higher. It probably has even in the last quarter. But I think over the coming decade or two decades, e-commerce is going to crush it, but it will probably be followed close behind on cloud computing.
Jason Hall: What do you think, Daniel Sparks?
Daniel Sparks: Those were good answers. I was going to go with cloud computing — I’ll just stick with that. It’s so hard to predict, but I just think that there’s a lot of upside there; we’re just touching the surface. A lot of the new players in cloud computing that are coming along are reinventing the wheel in a way that is more enduring — a lot more capital spending upfront, profits way down the road — and I think that that will pay off.
Jason Hall: This is the kind of thing that you can get wrong and still make great money. That’s what I love about this, we’re not betting on horses here. I’m going to offer a sneaker pick. I’m going to say real estate is going to be the best sector to hold over the next five years. Even with the growth potential of SaaS, the growth of the cloud, and a lot of other technology as more businesses deploy it.
I think we’re at a point where publicly traded real estate investment trusts are so undervalued as a sector. There’s this idea that the commercial real estate’s dead that nobody is going to go back to the offices and everybody is going to go buy a farm in Indiana and work remotely. It’s so overplayed to me, it’s so unrealistic to how things are really going to look in a very broad way.
I think there’s no better investment and no better sector. We think about Amazon still, Google, these guys are still signing big giant leases for tens of thousands of (square footage of) real estate. I think that informs us right there. If you start from today’s valuations, you think about the cost of capital with interest rates where they are. You think about the total returns to the dividends that these investments are going to pay and investor interests in finding yield. Those things are going to be combined, I think real estate investment trust, over the next five years, could easily be the best performing sector. We’ll see.