How to find tomorrow’s winning stocks today

published 1 May 2019

Where can tomorrow's industries be found on the stockmarket? Today's sectors represent past success; future consumers' needs will be met by new technology and business structures. Some of these emerging areas will already be listed on the stockmarket, but typically in small and medium-sized firms that are easily overlooked. For some, the edge is in technology, but more often change comes from disruptive business models using capital differently, or offering innovative customer services.

Once a few businesses have listed in a subsector, analyst research and interest from investors gradually builds up. It becomes easier to see a pattern to the change. Then each additional listing adds credibility to the subsector. This can lead to a re-rating as investors gain a clearer picture of the new business models and growth prospects. Interesting areas include challenger banks, student accommodation and legal services. In each sector a competitive edge allows the new businesses to disrupt the incumbents.

All these changes have spawned new businesses, such as Burford Capital (Aim: BUR), Manolete Partners (Aim: MANO), Keystone Law Group (Aim: KEYS) and Knights Group Holdings (Aim: KGH). Keystone and Knights are growing organically and by acquisition. Burford focuses on financing major US cases, where litigation can take years. Manolete addresses the need for company administrators to value claims. It has identified opportunities in pursuing claims against companies and their directors.