The Most Profitable Industries for the Next Three Years
Not surprisingly, four of the five industries with the fattest profit margins are connected to the mining of natural resources, such as crude oil and precious metals like gold. Companies in these industries have an opportunity to flourish as these areas grow. And investors who take their cues from these industries may be able to boost the profit margins of their portfolios as well.
Mining Support -- The need to produce energy and raw materials has this industry reaping a 66% profit margin coming out of the recession. The run-up in prices for oil, gold and other minerals means companies that engage in the mining and exploration of commodities will continue to benefit as long as demand stays high.
The depressed economic environment has given this industry another edge as well. "Ultimately what brings this industry its high profit margin is that wages only account for about 22% of revenue," says IBISWorld senior industry analyst Toon van Beeck.
Companies that should benefit most from the industry's good fortune include Halliburton (HAL), which holds a 9% share of the market, Key Energy Services (KEG), Diamond Offshore Drilling (DO) and Noble (NE).
Psychologists, Social Workers and Marriage Counselers -- No doubt much of the misery caused by the Great Recession, has led to this industry's 65% profit margin. Tough times increase demand for these types of professional services, and the industry has low startup costs and is largely composed of single practitioners. These small businesses can quickly become licensed, set up their own shop, set competitive pricing in most cases and keep most of the profits for themselves.
Gold and Silver Ore Mining – With gold now trading at record prices above $1,300 an ounce, it's no wonder this industry has enjoyed a 62% profit margin. While gold will likely remain in high demand for years to come, IBISWorld believes there may be too much demand on the investment side, which could hurt profits if investors flee quickly.
"We anticipate a pullback in the price of gold, but it's still going to remain a very profitable industry," says van Beeck.
And as long as the gold rush continues, market leaders Newmont Mining (NEM), Barrick Gold (ABX), Kinross Gold (KGC) and Rio Tinto (RTP) will likely benefit the most.
Copper, Nickel, Lead and Zinc Mining – Demand for copper for industrial uses continues to fuel the industry's 56% profit margin. Prices for copper and these other metals are at or near all-time highs, and profits should continue to increase as economies around the world pull themselves out of recession.
"Demand for these core metals is going to push prices up and push the overall profit margins for these companies higher," says van Beeck.
Look for Freeport-McMoRan Copper & Gold (FCX), which has a 42% share of the market, to benefit most, with Rio Tinto (RTP), and Teck Cominco (TCK) also joining in.
Oil Drilling and Gas Extraction – BP's (BP) disaster in the Gulf of Mexico didn't appear to hurt this industry too much as it produced a 48% profit margin. Profits from oil selling at $75 to $80 a barrel are hard to beat, and IBISWorld sees oil prices trending up toward $100 a barrel within three years.
Ironically, BP will continue to dominate this sector along with ConocoPhillips (COP), Chevron Corporation (CVX), Exxon Mobil (XOM) and Royal Dutch/Shell Group (RDSA).