Six Future Trends That Investors Cannot Ignore
Alexander is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Editor's Note: This article has been amended to correct the 2025 projection of Americans over 60.
I recently read an interesting report entitled “Future Work Skills 2020" that was written by the Institute for the Future. The report outlines six trends that are likely to continue into 2020. For us investors, it is more important than ever to understand the needs of the marketplace before the marketplace understands itself.
The six trends of the future
These are the six trends that were identified by the Institute for the Future:
- Increasing life spans will change the nature of careers and learning. By 2025, the number of Americans over 60 will increase by 70%. Investment into health and healthcare systems will be a priority.
- Automation will push humans out of the workforce and cause workers to abandon rote tasks. Software and robotic automation will reduce the need for repetitive job roles and functions in certain segments of the economy.
- The computational world will increase the amount of sensors, data, and communication technologies. IBM (NYSE: IBM) defines it as big data and analytics.
- A new media ecology will emerge, with various forms of content like video, pictures, and text blending together in a unique way that will change the way people work and learn in the business and education environment.
- Super-structured organizations driven by social technologies will drive new ways of becoming productive and generate value. Examples of this include Salesforce.com (NYSE: CRM) and its customer-relationship management tools. The services allow for large organizations to communicate across all levels in order to better manage sales relationships. Repeat this function using social tools in other aspects besides selling and the super structured organization will become much more horizontal.
- A globally-connected world whereby Internet connectivity will increase. This will eliminate many barriers of entry, as the Internet is a great equalizer. The global economy will continue to outsource certain job functions to other companies. Service companies like Accenture (NYSE: ACN) will prosper.
Let’s start with IBM
The company isn’t really well-known for business analytics and big data services. There are a variety of business-to-business and public sector solutions that the company currently markets and sells across the world, however. Data and the ability to analyze it will become increasingly important as companies can better deploy resources and extract gains in productivity.
IBM plans to generate 90% of its earnings from software and services by 2015. The company has plans to diversify and reduce its current exposure to systems and technology. In the first quarter, the company was able to grow revenues by 7% in business analytics, 25% in smarter planet technologies, and 70% from the cloud.
By 2015, IBM will cut its costs by $8 billion, initiate a share buyback program of $70 billion, and pursue $20 billion in acquisitions. I believe that the company will be able to reach its own target of $20 in earnings per share by 2015.
Salesforce.com remains compelling
In its most recent quarterly earnings release, Salesforce was able to grow its revenues by 28% year-over-year. The growth was primarily driven by the subscription and support side of the business. In the most recent quarter, the company reported $842 million in revenues from subscriptions, which grew by 28.5% year-over-year. The company also grew its professional services segment by 25% year-over-year, though the professional services segment only represents 5.65% of total revenue. To generate further revenue from professional services, Salesforce recently bought out ExactTarget. ExactTarget generated $292 million in revenue during the 2012 fiscal year and has been able to grow sales by 43.52% on average over the past five years. The acquisition of ExactTarget will be strategically valuable for the company.
Analysts on a consensus basis anticipate Salesforce to grow its earnings by 28.39% on average over the next five years. The company trades at a 6.8 price-to-sales ratio, which is a little bit above average. The high price-to-sales ratio is driven by the high rate of growth that is anticipated from the company. I believe this company will continue to be a compelling investment opportunity going forward.
Accenture a compelling investment opportunity
Accenture is a global outsourcing company. It also provides management consulting services and technology services. In its most recent quarterly earnings report, the company was able to grow its outsourcing revenues by 9% year-over-year in the first quarter of 2013.
The company is primarily growing net income through small amounts of cost cutting and modest revenue growth from the United States. It is projected to grow its earnings by 11.62% on average over the next five years.
The company trades at a 17.2 earnings multiple and pays its investors a 1.98% dividend yield. It is slightly down by 5.59% from its 52-week highs; with the recent market pull-back, this company is a buy on the dip.
I believe big data, organizational structuring, and outsourcing will be some of the largest trends going forward. Investors should look to invest into IBM, Salesforce.com, and Accenture to capitalize on these three growing trends in business.
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Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends Accenture and Salesforce.com. The Motley Fool owns shares of International Business Machines.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!