By Mary Ellen Biery, Research Specialist, Sageworks
Looking to reignite your portfolio in 2013 by investing in a new sector? We conducted a financial statement analysis of privately held companies to identify the fastest-growing industries in the 12-month period from December 2011-December 2012. These are industries that have seen dramatically higher growth than the average 9 percent sales growth all private companies generated, according to our current data. While the companies analyzed are privately held, their growth may reflect the overall health of their respective industries. These industries may be a good place to start evaluating possible investment opportunities.
With manufacturing having played a pivotal role in the economic recovery, it's no surprise that several manufacturing industries are among the strongest growing over the last 12 months, based on current estimates.
Machinery equipment wholesalers (NAICS 4238), machine shops (NAICS 3327), architectural and structural metals manufacturing (NAICS 3323) and industrial machinery manufacturing (NAICS 3332) are among the top 10 fastest growers.
"It's possible that those are tied together as businesses have started to use some of their cash to invest in needed equipment and upgrades," said Sageworks analyst Brad Schaefer. "All of those took really big hits in 2009 because companies weren't investing in a lot of equipment."
Other industries showing up in the top 10 fastest-growing industries over the last 12 months are related to petroleum and other forms of energy. Schaefer noted that the oil boom in the Northwest Plains, increased shallow water drilling in the Gulf of Mexico and other operations are providing new opportunities for companies to expand their drilling operations.
Support activities for mining (NAICS code 2131), which includes drilling and making geological observations at prospective mineral, oil and gas sites, grew about 32 percent over the last 12 months. Meanwhile, the high price of oil this year has contributed to 27 percent growth among wholesalers of petroleum and petroleum products (NAICS 4247) and 18 percent growth among gasoline stations (NAICS 4471).
Through its cooperative data model, Sageworks collects financial statements for private companies from accounting firms, banks and credit unions, and aggregates the data at an approximate rate of 1,000 statements a day.
Of course, just because an industry has been growing strong for the past 12 months, there's no guarantee that growth will necessarily continue, Schaefer noted. But looking at some of the drivers of recent growth may yield clues on potential future growth.
Schaefer noted that increasing reliance of U.S. companies on computers could have contributed to the nearly 18 percent growth experienced by computer systems design and related services (NAICS 5415) over the last 12 months. This industry has also had steady growth in previous years.
"It's been steady since 2010," Schaefer said. "Even in 2009, when almost all industries had sales declines, computer systems design grew about 4 percent, which usually signifies a stable industry."
Strength in the computer technology industry was apparent when companies like Meru Networks, Inc. (MERU) revealed their strong Q4 earnings in January.
Employment services (NAICS 5613), which has grown sales by about 18 percent over the 12 month period, is another industry that may have some of the same drivers in place, Schaefer said.
"I see the employment services industry doing fairly well again, just because a lot of people are still uncertain about the economy and the political atmosphere, which contributes to businesses hiring temporary or contract workers instead of full-time employees," he said. "I don't think that's something that'll go away for the next year."
Fastest-Growing Industries (privately held companies only)*
NAICS code - Industry
Sales Growth Last 12 mo.
2131 - Support Activities for Mining
4247 - Petroleum and Petroleum Products Merchant Wholesalers
3332 - Industrial Machinery Manufacturing
1121 - Cattle Ranching and Farming
3323 - Architectural and Structural Metals Manufacturing
3335 - Metalworking Machinery Manufacturing
3327 - Machine Shops; Turned Product; and Screw, Nut, and Bolt Manufacturing
5613 - Employment Services
4471 - Gasoline Stations
5415 - Computer Systems Design and Related Services
4238 - Machinery, Equipment, and Supplies Merchant Wholesalers
*Analysis looked at the December 2011-December 2012 time period.
Sageworks, a financial information company, collects and analyzes data on the performance of privately held companies and provides the Business Credit Report by Sageworks.