What do CEOs across the world worry about the most?
That's the question global professional services firm PwC set out to answer. PwC interviewed nearly 1,300 CEOs across 85 countries, asking detailed questions about what issues concern them the most. The firm summarized its findings in its recently published 21st annual CEO report.
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But where there are worries, there are also opportunities. If CEOs are concerned about an issue, they're more likely to look for solutions to the issue -- even on a proactive basis. With this in mind, here are the top five things PwC found that worry CEOS the most, along with potential investing opportunities in each of the areas.
You might be surprised that overregulation was the top worry of CEOs, with 42% of executives interviewed by PwC stating that they were "extremely concerned" about the issue. Overregulation ranked among the top five concerns for CEOs in every global region.
It's not a new worry, either. Overregulation stood at the top of the list in PwC's 2017 CEO report as well.
Veeva Systems (NYSE: VEEV) is one stock that should prosper as a result of concerns about coping with increased government regulations. Veeva's primary business is providing cloud-based applications for the pharmaceutical industry that helps the companies comply with regulations, manage clinical data, and help improve customer interactions, and more.
In Veeva's fourth-quarter results, CFO Tim Cabral said that the company's revenue retention rate was 121%. This means that not only are customers staying with Veeva, but they're also using more of its products. That shows just how strong Veeva's moat is. Veeva is also expanding beyond pharmaceuticals and life sciences, with over 20 companies -- including two large chemical companies -- signing up for its quality management application.
Terrorism leaped from the No. 12 worry on the PwC report in 2017 to the second-highest spot this year. Forty-one percent of CEOs stated that they were extremely concerned about terrorist threats.
Although major terrorist attacks could cause many stocks to fall, one potential exception is Verint Systems (NASDAQ: VRNT). Verint's cyber intelligence segment generates 35% of the company's total revenue. This business unit offers products specifically focused on helping governments thwart terrorist attacks. For example, Verint's data-mining technologies help authorities discover actionable insights from terrorists' communications and open-source intelligence.
3. Geopolitical uncertainty
More CEOs are very concerned about geopolitical uncertainty than they were a year ago. The issue ranked No. 3 on PwC's 2018 CEO report, with 40% of CEOs listing it as major worry. In 2017, geopolitical uncertainty came in at No. 5, with 31% of CEOs stating that they were extremely concerned about the issue.
Defense stocks tend to perform pretty well in times of global uncertainty. General Dynamics (NYSE: GD) is one of the top defense stocks on the market. The company makes everything from armored vehicles and tanks to command-and-control systems for the military to submarines and ships.
The $1.3 trillion omnibus spending bill passed by Congress and signed by President Trump could boost General Dynamics' fortunes even if geopolitical uncertainties subside. The bill included the biggest increase in defense spending in 15 years. Even higher defense spending could be on the way in President Trump's 2020 budget.
4. Cyber threats
Cyber threats jumped from the No. 10 spot last year to No. 4 on the 2018 PwC CEO report. And the issue was the top concern among CEOs in North America, with 53% of the executives saying they were extremely concerned about cyber threats.
There are several companies that specialize in addressing cyber threats. One of the top performers is FireEye (NASDAQ: FEYE). Over the last 12 months, FireEye stock is up more than 30%.
There are several reasons for investors to like FireEye even after its big gains. The company's Helix cybersecurity platform gives customers pretty much everything they need in one product. FireEye continues to make acquisitions to bolster growth. It also enjoys solid recurring revenue from its subscription business.
5. Availability of key skills
Coming in fifth on PwC's list of CEO worries was availability of key skills. Last year, the issue ranked as the fourth-greatest concern. So, are CEOs less worried about the availability of key skills? Nope. While 31% of CEOs in 2017 said they were extremely concerned about the issue, the level rose to 38% this year. It's just that they had even bigger worries this time around.
Which kinds of stocks could benefit from CEO anxiety about the availability of key skills? I think a long-term perspective is needed. And over the long term, probably the best answer to the issue is artificial intelligence (AI). AI applications hold the potential to augment -- and, yes, even replace -- workers in the areas of greatest need.
There could be the equivalent of a gold rush as AI becomes more commonly used. Those who sold shovels prospered the most during past gold rushes. I suspect that will be also happen with the "AI gold rush." The equivalent to shovels in AI is chips, which should mean that NVIDIA (NASDAQ: NVDA) will be a big winner.
NVIDIA's executives spoke a lot about AI during the company's Q4 earnings call. It's a significant growth driver for the company now, and it should continue to be for years to come. As AI applications evolve and help address the issue of availability of key skills that bothers CEOs now, NVIDIA's graphics processing units (GPUs) are likely to help power those applications.
Optimists at heart
While these were the top worries of CEOs, they're actually pretty optimistic overall. PwC reported the highest-ever jump in CEO optimism regarding global economic growth, with 57% of CEOs thinking that conditions will improve this year. Only 5% expect global economic growth will decline. PwC's title page for its 2018 CEO report perhaps summarized it best: "The anxious optimist in the corner office."
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