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Five
Mega-Trend Investment Themes |
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 This
is an edition I've been meaning to do for a while, but just haven't had
the opportunity...until now. It's a good one though - one I think
could make you a bundle of money if you understand 'conceptual' investing.
I'm
not claiming to be another John Naisbitt, author of 1982's best-selling
book 'Megatrends'. In it, Naisbitt lays out some of the global paradigm
shifts almost too big for anyone to really see. All I'm sharing today are
five of the key trends I (and some others) expect to make for great investment
themes over the next couple of decades - a timeframe bigger than most technical
or fundamental analysis techniques actually help with.
No
fanfare needed; let's just jump in.
Theoretically
you could lump oil and natural resources into this trend, but I'm specifically
referring to the massive growth on demand for metals. And I'm not
talking about a certain point in a cyclical bull market - I'm talking about
a dynamic that may never really go away.
 The
inflation-adjusted prices of commodities are still below where they were
three decades ago. As if that weren't enough, inventories of the four
base metals are falling every year. Take copper for example. Within 10
years, less than half of the expected demand for copper will be able to
be met by currently-operating mines. The basic same reality is true for
all basic materials. Shrinking supply? Growing demand? You know
that that means.
Though
certainly not alone, China is at the heart of the demand. China uses 26%
of its steel and aluminum, 33% of its iron, and 22% of its copper.....tops
for each respective metal. However, global demand is up plenty as a whole.
I just look for prices to keep on rising as the world's accessible resources
become more depleted.
The
big victors in this race will be the miners finding new supplies of metal....which
is statistically unlikely, but a lottery ticket if they find one .
However, even the companies with proven mines should do well, the way I
see it.
Surely
by now you've heard how India's recent desire to become an integral
part of the global society has also opened the doors for unprecedented
growth. The thing is, this isn't just some hypothetical wish....the
economy there is indeed growing like wildfire. How do I know? Inflation
is rampant there. The economy could grow at a double-digit pace this
year. Their central bank has been forced to repeatedly raise interested
rates. Yet, it still hasn't been enough to cool things down.
So
how do you capitalize on the explosive growth in India? I think infrastructure
is the obvious first way...buildings, roads, communication technology,
and utilities.
There's
a more obscure trend I see brewing for India though - financial services.
Incomes are going up like crazy, reflective of the economic growth. More
and more Indians are also accessing the Internet. As disposable/investable
income improves along with the information about investment opportunities
via the web, I have to think at least some of that cash will find
its way into the hands of local financial professionals.
The
ideal way to take advantages of the trend is to own the appropriate Indian
stocks. However, for the 99% of North American investors without
international accounts, there are still some ways to take advantage of
that overseas growth.
I know
some of you were tempted to just skip this section. I mean, what could
be more boring than investing in an industry that's not changed since....well,
ever. Just hear me out.
 There
are over six billion people on the planet right now, and we know that number
is on pace to be eight billion by the year 2025. Since every single one
of them will need to eat, we'll need to produce about 33% more food
then than we do now. That's not going to be a small feat
The
problem is (like metals), we're eating food faster than we're making it.
Five of the last six years, the human race collectively consumed more
grains than farmers produced. The result? Global grain stocks are at
the lowest levels we've seen in three decades. And it's not just grains.
Produce, meats, dairy - even with inorganic (steroid) 'help' - are
getting harder and harder to supply relative to the demands of a growing
population, safer standards, and a new clamoring for pure, organic foods.
As
far as how to play this idea, I don't see any mystery. The industry names
have been whittled down to a few major suppliers, though they may or may
not be based in the United States. And it's not just crops and cattle companies...any
company that can make it easier to supply or deliver food may also do well.
I almost
didn't include this one, uncertain of how it would come across. Then I
figured what the heck - our reader base understands our goal is
simply to identify real opportunities.
The
theme itself is actually self-explanatory...people are living longer
(and I for one am grateful). However, longevity also expands the need for
medical care...pharmaceuticals, long term care, retirement centers, primary
healthcare facilities (hospitals) - you name it.
But
it's not all gloom and doom here - these folks often have truckloads of
disposable income and/or lots of retirement savings they want to burn off.
That means opportunities in tourism, financial services, and all kinds
of other things.
(I
know the growing number of retirees and elderly isn't anything new at this
point, but in my opinion, the idea too easily falls off of investor radars.
Why? It doesn't produce immediate returns. However, I feel the right ones
could, given enough time.)
I'm
not exactly a fan of M-TV anymore. However, I can't resist a good train
wreck every now and then. Their show 'My Super Sweet Sixteen" is basically
a documentary of the over-the-top planning for some over-indulged daughters'
sixteenth birthday party. We're talking party price tags of six figures,
and sometimes close to seven figures. Frequently the party ends with the
parents turning over the keys to a car that can sometimes cost more than
a small house.
 When
I first saw the show, I finally became convinced Madonna's theory was right
- we are living in a material world. Today's twenty-somethings are
collectively on track to be the first generation to perpetually remain
in debt, spending more than they save right out of the gate - right
as they enter the work force. (Hopefully that description doesn't fit
any of our readers.)
Fiscal
irresponsibility aside, there is an opportunity behind the trend. Where?
The
companies indulging those material whims stand to make a tidy profit.
I immediately
thought of the fashion retailers. You know the ones - hip, trendy, and
overpriced. The P/Es and ROEs for many of these companies may surprise
you. But, with consumer spending trends being what they are, the most 'fashionable'
of the names are probably going to be able to keep naming whatever prices
they want.
At
the same time - and as much as it worries me for their sake - credit
card companies also love this demographic's debt habits. Late charges are
at all-time highs for credit card bills, and making the minimum payment
is the norm. That means finance charges....and a lot of them.
Just
so you know, both the retailers and the credit services companies are real
hit and miss in terms of stock performance as well as financial results.
But, the ones that do well seem to do really well. So, if you're in agreement
with the theme, just choose carefully.
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Runners-up
& Final Thoughts |
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I actually
had a few more ideas that didn't make my top five, but are still worth
mentioning. They are (in no particular order) Russia, (potable) water,
Africa, and healthy eating (including weight loss and dietary supplements).
Maybe I'll look at those in more depth later, or maybe not. Either way,
they may be worth a little due diligence on your end.
As
for the five I detailed above, insert all the proper disclaimers here -
no guarantees, only my opinion, blah blah blah.
Also
keep in mind these are looooong-term ideas, and probably not something
you could expect to produce results in only a few months. The key message
I was trying to get across was the mega-trend I see taking shape. Hopefully
I'm right on target and we can all make some nice macro-view money.
I plan
on following this edition with a blog entry later this week, citing a handful
of specific, quality company names that look like they fit into this mega-trend
outlook. Be sure to keep an eye out for it. In the meantime, we've got
some major small cap news to cover in the middle of this week. And of course,
I'll post some observations on this indecisive market.
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