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Special Report October 2011
Top 10 Most Profitable Industries BySeniorAnalystsNikoletaPantevaandJustinMolavi
As the economy economy recovers, recovers, many many industries industries will increase increase prot margins, but some will will operate at a much more more efcient efcient rate than than the average average Five of the 10 most protable industries are mining related
In a protability analysis of US industries, IBISWorld found that ve out of 10 of the most protable industries are mining related: from copper to molybdenum to oil to iron ore. Furthermore, the Information Age has placed high value on intellectual property, so it’s no surprise that two of the ten industries on the list, l ist, including the most protable industry, involve the development and licensing of such work. Operating Systems & Productivity Software Publishing This industry is highly concentrated with well-known well-k nown operatin operating g systems systems publishers. publishers. While entry into into this market may be extremely difcult, once in, rms can nd comfort in the 61.0% prot margins. The intellectual nature that comes with developing these products makes them very high high in value. Furtherm Furthermore, ore, any any additional changes or upgrades are made at a low marginal cost, which allows for additional sales to quickly become prot. Trusts & Estates Despite having no major players, the average operator in the Trusts & Estates industry is highly protable. The legal entities included in this industry range from personal trusts and estates to wills, which are managed on behalf of the
beneciaries. Companies do not incur incur portfolio management costs, as these activities are handles by rms in the Portfolio Management and US Custody, Asset and Securities Services industries. Prot will account for an estimated 54.0% of revenue in 2011. Copper, Nickel and Zinc Mining Mining companies hold off on mining activity when commodity prices (copper, nickel and zinc) are low, ensuring high prot margins before a project is undertaken. Copper sales generate 73.9% of industry revenue and have carried industry prot margins with high demand for construction and electronics manufacturing abroad. Continued emerging economy growth will make it easy for this industry to continue reaching high prot margins. Oil Drilling and Gas Extractio Extraction n Industry rms often don’t drill for oil or gas without the project being protable to begin with, providing a strong foundation for industry protability. Oil prices have risen substantially since the recession, supported by tension in the Middle East and growth in demand from emerging economies. These prices, however, are volatile and vary quite a
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Special Report October 2011
Top10MostProtableIndustries
bit from quarter to quarter which may hurt protability in some cases. Syrup & Flavoring Production Companies that make syrups and avorings for use in downstream softdrink production are highly protable. Inputs include sugar and corn syrup, both of which are typically low cost. Additionally, the high value added by syrup and avoring producers allows these rms to charge high prices to buyers. Together, these factors allow for high industry protability, at an estimated 47.5% of revenue in 2011.
Iron Ore Mining Iron miners have been supported by strong demand abroad for steel as emerging economies focus on infrastructure spending and build out. These mining rms also pay close attention to iron prices before mining to keep prot margins high. Steel prices are expected to continue rising as China builds out large infrastructure projects. Additionally, new steel-making techniques are incentivizing steel producers to produce more – spurring growth in iron ore purchasing.
Top10mostprotableindustries Industry
2011Protmargin (%)
Major Players
Operating Systems & Productivity Software Publishing
61.0
Microsoft Apple
Trusts & Estates
54.0
No major players
52.1
Rio Tinto PLC Grupo Mexico SA de CV Teck Resources Limited
Oil Drilling & Gas Extraction
48.0
Chevron Corporation Conoco Phillips BP PLC Royal Dutch/Shell Group ExxonMobile Corporation
Syrup & Flavoring Production
47.5
No major players
Iron Ore Mining
46.4
Cliffs Natural Resources Inc. United States Steel Corporation ArcelorMittal SA
43.0
Simon Property Group Inc. General Growth Properties Inc. Vornado Realty Trust Brookfield Properties Corporation
Molybdenum & Metal Ore Mining
42.0
Freeport-McMoRan Copper & Gold Inc. Rio Tinto Group Stillwater Mining Company Thompson Creek Metals Company Inc. Cameco Corp.
Intellectual Property Licensing
40.0
The Walt Disney Company
39.1
Barrick Gold Corporation Newmont Mining Corporation Rio Tinto Group Kinross Gold Corporation
Copper, Nickel, Lead & Zinc Mining
Commercial Leasing
Gold & Silver Ore Mining
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Special Report October 2011
Top10MostProtableIndustries
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Commercial Leasing Commercial leasing agencies are expected to keep 43.0% of revenue as prot in 2011. Revenue and prot for this industry are largely dependent on the interest rate and value of the loans made. Despite low interest rates, commercial lenders are still earning high margins due to the high value of the loans they make. As interest rates rise over the next ve years, the industry’s prot margins are likely to increase further. Molybdenum & Metal Ore Mining Other types of metal and molybdenum miners also wait for high relative prices before mining. Molybdenum is used as an alloy agent for steel and its demand is ultimately driven by demand for steel. Emerging economies’ demand for steel has ensured high prots margins as the price for molybdenum and other types of related metals rose in tandem. Prices are set to continue rising as infrastructure demand abroad expands.
Intellectual Property Licensing Firms in this industry experience high prot margins due to strong demand from buying industries. The low costs associated with granting intellectual property rights, coupled with the large amount of revenue derived from existing high-value brands seeking the industry’s services, allow companies to keep about 40.0% of their sales as income. Gold and Silver Ore Mining Along with other types of miners, gold and silver mining companies dig for gold at higher rates when prices for gold and silver increase. Growing investor uncertainty has created interest in gold investing, as a hedge to ination and other types of economic malaise. As such, gold prices have grown substantially while global economic growth is still skittish and the US Federal Reserve continues to pump money into the system. Higher prices have set the stage for sizeable prot margins as gold miners pan for gold increasingly.
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