As discussed in Parts Two and Three, all businesses operate in a global environment, albeit to varying degrees. This section of the book provides a brief primer on the world economy's major sectors and the industries that comprise them (see the following table). We review 11 sectors and 91 global industries based on 10 of the largest publicly traded companies in each industry. The primers cover key variables that affect sales growth and profitability for the industry, how the companies in the industry are commonly valued by analysts, and the principal factors that should be considered by investors when evaluating those businesses.

I have restricted the companies listed to those located in countries with investment-grade credit ratings on their government-issued (sovereign) debt. As a result, you will note that there are no companies listed from certain countries such as Brazil, Greece, Russia, Turkey, or Vietnam, among others. Since sovereign credit ratings are subject to change, the list of countries that meet this criteria will change over time.

The industry categories are my own variation of the standard industry classification systems you will find elsewhere and are not exhaustive since some small subindustries have been omitted or combined into a larger group. I have tried to group companies together based on common factors that affect their business operations as well as their behavior in a typical market cycle. Some companies may fit into more than one category, and two businesses within any given industry group could have vastly different business models. Investors should also expect new industries to appear as innovative technologies are developed and as market conditions evolve.

The 10 companies chosen for each industry were selected based primarily on their most recently reported revenue and EBITDA for the preceding 12-month period (both measured in US dollars). I then chose representative publicly traded businesses for each industry from around the world. Each list would be made up of different companies if the criteria for ranking them were to change, so the reader should therefore not construe the companies in these lists as the best or the largest in each industry. Readers should also be aware that government regulations in your home country may prohibit you from owning one or more of the companies listed in these industry primers. Be sure to check before you invest in any foreign company to ensure that it is not classified as a restricted investment by your local authorities.

Investors must also consider risks and opportunities in the equity markets that have only recently appeared but were not explicitly factored into the company selection process. These include blockchain technology and cryptocurrencies, cybersecurity, ESG factors, including climate risks, digital banking, woke culture movements, cancel culture, fake news, deep fakes, and meme stocks. While many of these can be attributed to market noise, it is more important than ever to focus on the intrinsic value and earnings power of a business. As part of your due diligence, you would want to consider how a company is affected by these risks. As noted earlier, the companies in these chapters were selected from among the largest publicly traded companies in each industry. Small and mid-sized companies are also worth considering as an investor, but keep in mind that size has its advantages in the business world, and that added due diligence may be needed for smaller companies, especially those that are relatively young and for which less historical financial data is available.

In addition to providing a list of 10 representative companies operating in each industry, the tables in Chapters 9 to 19 show how characteristics for each industry compare to the average for the sector, and the (implied) market. For our purposes, each industry is comprised only of the 10 companies listed, and each sector is made up of all of the businesses included in each underlying industry. The market characteristics are based on the average of all 900 or so businesses listed in Part Five. Companies denoted with an asterisk have been listed more than once because they have leading positions in more than one industry. One such company is Microsoft, which has dominant positions in both the software industry and the interactive entertainment (video game) industry. Given their relative complexity, I do not break down conglomerates in this fashion. While the 10 companies listed for each industry are among the largest in the industry, one should not assume that they are the best-run companies in the industry or that they are good investments.

The reader should note that the relative sector and industry characteristic ratings provided in the forthcoming tables reflect a single point in time and are based on the average for only the 10 companies listed. Furthermore, these ratings are based on data from only the past few years and therefore the relative valuation, profitability, and growth ratings should not be interpreted as being a target or that they will persist in the future. These tables are simply meant to aid the reader by providing a consistent framework for analyzing and comparing sectors, industries, and companies. These relative characteristics may change meaningfully over time.

In these tables we focus on the following key characteristics: valuation, profitability, sales growth, profit growth, debt levels, dividend yield, dividend payout ratio, dividend growth, earnings predictability, and share price volatility. The valuation comparison is based on the average P/E ratio for each company in the group over the past 10 years. Keep in mind that for industries that are growing quickly and require considerable amounts of reinvestment, a simple P/E multiple may make them appear to be egregiously expensive and so other metrics that employ cash flow or EBITDA should also be considered. Sales growth refers to the average annual growth rate in net sales over the prior five-year period, while profit growth refers to the five-year geometric growth rate in profit margin. Debt levels are measured by net debt-to–shareholder's equity. We use net debt on the assumption that any cash held by the firm could be used to pay down debt if needed. Dividend yield is calculated using the company's expected dividend payments over the next 12 months divided by the current share price. The dividend payout ratio is calculated by dividing the company's total dividend payment by its net income, while dividend growth is measured by the annualized percentage increase in dividends per share over the past five years. Earnings predictability is assessed based on the standard deviation of annual earnings estimates over the next two years. Share price variability is measured by taking the average monthly change in share price over the past 10 years.

As a reference point, valuations for stock markets in developed countries over the past 25 years or so have averaged 21–22× for price to earnings (P/E), 10–11× for price to cash flow (P/CF), and 23–24× for price to free cash flow (P/FCF). This compares to 15–16× P/E, 8× P/CF, and 34× P/FCF for developing markets. In aggregate, the long-term average valuation for all stocks currently sits at 20–21× P/E, 10× P/CF, and 22× P/FCF. Over the past 20 years or so, return on equity (ROE) has averaged 11.2% for developed markets and 12.7% for developing markets, while profit margins have averaged 6.4% for developed markets and 8.8% for developing markets. The dividend payout ratio has averaged 50% for developed market companies and 36% for developing market companies. Historically, the higher payout ratio for developed market companies makes sense since, broadly speaking, they tend to be more mature businesses with comparatively few opportunities to reinvest and grow. Similarly, the higher growth rates and profitability metrics of developing markets intuitively make sense given the comparably higher underlying economic growth rates of the countries in which they operate.

The goal of these sector and industry primers is to provide the reader with a basic framework to build on, enabling them to improve their understanding and make more informed investment decisions. These primers should therefore simply be viewed as a starting point for investors as they begin their journey into global investing. Please refer to the tools and resources section near the end of this book for more sources of information used to analyze companies in the industries listed in Chapters 9 through 19.