Money Morning Article of the Week
by Keith Fitz-Gerald, Money Morning
As my Total Wealth readers know, when I started that newsletter I highlighted six “Unstoppable Trends” – each of which is backed by trillions of dollars – and promised that we’d check in on them from time to time in the pursuit of profits.
Today, I want to keep that promise.
Not only are all the “Unstoppable Trends” fully intact, many are getting even stronger. So are the companies we’re tapped into, especially when they’re in sectors being written off by the mainstream investment community.
Recent “Unstoppable” Winners
For instance, I brought Williams Companies Inc. (NYSE: WMB) to your attention on January 7, 2015, as a way of playing the beleaguered energy sector. As of March 3, it had returned 15.35%, or more than triple that of the S&P 500 over the same time frame.
Then there’s Kratos Defense & Security Solutions Inc. (Nasdaq: KTOS), a small niche defense contractor positioned for huge gains by playing outside the mainstream defense contracting procurement ballpark. It’s returned more than 16% since I called your attention to a re-entry point on Jan. 9.
Kyocera Corp. (NYSE: KYO), the Japanese tech giant I called out on New Year’s Eve as a means of playing the uneven stimulus that’s powering Japanese markets, was up 10.87%.
Thing is, I’m not telling you this to brag. What I want you to understand is that stocks backed by “Unstoppable Trends” have the potential to dramatically outperform the markets.
And that’s why you need to keep every single one of our trends at the top of your mind… so that you can tap into the potential created by trillions of dollars on the move.
Here’s what you need to know about each of our “Unstoppable Trends” today – starting with the biggest opportunity on the planet right now.
Energy is probably the most misunderstood of all our Trends today. Yet, it’s also potentially one of the single biggest opportunities out there.
I love the fact that analysts almost universally hate the sector.
To their way of thinking, a whole host of international events, from an oil pricing war with Saudi Arabia to negotiations for a nuclear deal with Iran, are conspiring to further drag down a sector that’s already down and out.
Here’s the thing: Energy shows every sign of approaching an opportunity that should make your heart beat faster as an investor: the point of “maximum pessimism.”
It’s easy to forget, but the demand for oil isn’t falling. Heck, it’s not even merely increasing. Instead, it’s accelerating. Not 1 in 100 investors understands this, which is why many energy companies are priced like they’re going to be out of business a year from now.
In fact, the U.S. Energy Information Agency (EIA) released a report just last month predicting global prices will soar by 33% over the next year. This jump comes despite increasing supply worldwide, with the U.S. alone expected to produce 200,000 more barrels per day in 2016 than in 2015.
Private sector research backs up this view. In fact, Deloitte is even more bullish, predicting a “U-shaped recovery” for oil prices, seeing them average to $62/barrel in 2015 – a 24% increase from today’s prices – while averaging $75 to $80 per barrel in 2016. I’m not sure I’ll go that far, but that’s not the point.
What matters is that multiple data points suggest oil is set to rebound even as supply steadily increases.
Some 70% of that is coming from – you guessed it – emerging markets where they have never known the price fluctuations in oil markets like we do. So conservation efforts here in the West are a moot point.
That’s why we’ll continue to seek out bargains in the oil and gas sector for years to come.
The world’s population is about to hit a never-before-seen milestone. According to a report by the National Institute of Health & Aging that was updated last January, the number of people aged 65 and older will outnumber children younger than five years old worldwide by 2020. It will be the first time in recorded history that that has been the case.
Of course, in some countries like Japan, the future is already here. Japan’s aging population has already had huge economic consequences – as America’s will eventually – ranging from diminished productivity to soaring healthcare costs to strained social security programs.
This will mean surging profits for medical companies like Becton, Dickinson & Co. (NYSE: BDX), and it will contribute to a complete global currency realignment, perhaps even breaking several major currencies including the yen.
We’ll be following the situation closely, looking for even more companies and exchange-traded funds that stand to profit from the inevitable consequences of a Demographic revolution.
U.S. national healthcare spending hit $3.8 trillion in 2014, thanks in large part to Obamacare‘s implementation and a related surge in Medicaid expenditures driven by millions of Americans who are now required by the law to purchase insurance. More than any other single factor, this was the cause of the 3.6% jump in healthcare spending in America in 2014, which far outpaced GDP growth for the same period.
But what most people don’t know is that the rest of the world is experiencing surging healthcare spending, too. Various sources including Deloitte, McKinsey, the IMF and others foresee total global health spending rising by an average annual rate of 4% or even 6% by 2017.
Whether these forecasts are conservative or optimistic is immaterial. What matters from an investing standpoint is that the resulting movement in capital will place huge amounts of stress on governments, social security systems, and insurers and developing markets.
As part of that, I expect trillions of dollars to get transferred worldwide, with several trillion right here in the United States.
This will be accelerated as new politically driven “mandates” create guaranteed market shares for favored companies and organizations, and therefore enormous profits.
And while we at Total Wealth may shake our heads at the chronic case of government overreach, we’re going to pursue every dime of profits with new recommendations along the way.
War, Terrorism & Ugliness
Speaking of which, my least favorite trend – War, Terrorism & Ugliness – seems to be growing. Much to my dismay, it remains as pertinent as ever, both personally and professionally.
Generals and defense experts in the U.S. are urging Britain to revise its budget for military expenditures upward, from “only” £35.5 billion. Russia, even at the height of its currency crisis, announced plans to spike its military spending by 33% by 2016. Meanwhile, the U.S. Department of Defense, which already spends more money than the next three largest U.S. government agencies combined, has requested a budget for fiscal year 2016 that steps up spending by 7.7% to a whopping $585 billion.
Like healthcare, the defense sector will benefit enormously from increased government spending and guaranteed contracts as governments gear up to defend against new and emerging threats. As the struggle against ISIS continues and efforts to prevent a nuclear Iran heat up, defense companies like Raytheon Co. (NYSE: RTN) will flourish.
I wish this wasn’t the reality we live in. But, since it is, I say we take full advantage of the trillions in capital that are on the move to prepare our portfolios and our profits accordingly.
Mention Scarcity/Allocation, and most investors immediately default to energy. I can’t blame them, given the long gas lines of the 1970s, the politically elusive concept of energy independence, and the concept of Peak Oil – all of which have been driven into our consciousness over the past 40 years.
Yet, Scarcity/Allocation is a Trend that’s powered not just by the lack of precious commodities, but also by the allocation of resources including money itself. Consequently, it’s a perfect way to play central bank meddling.
It’s also front and center when it comes to global resources being more strained than ever before.
The World Bank, for example, estimates that every year, 24 billion tons of fertile soil are lost due to land erosion, while 12 million hectares (29.6 million acres) of fertile land are lost due to drought. This pattern will make companies like CNH Industrial NV (NYSE: CNHI) that deal in agriculture and improved farming methods more in-demand and even more prosperous than they are already.
But back to the money for a second.
People don’t think this way, but money is a resource, too. That’s why exchange-traded funds like the ProShares UltraShort Yen (NYSE Arca: YCS) have such potential.
As I noted a few years back during a presentation in San Diego, I think it’s the closest thing to a home run trade most investors will see in their investing lifetime.
Of course, no discussion on the Trends would be complete without a reference to Technology.
Unfortunately, most investors don’t understand how to play it. They think they do, but what most folks are missing is the distinction between obviation and extinction.
Apple Inc. (Nasdaq:AAPL) is clearly not content to rest on its laurels following its world record earnings report last quarter. I love the fact that the company is making automakers nervous with its plan for a driverless car, the “Apple car” because it’s the kind of creative destruction that can redefine an industry and the profits that go with it.
Meanwhile, GoPro, often cited as having great upside, is actually on the wrong side of the Technology Trend. That’s because new Chinese alternatives are causing investors to rethink the possible and the obvious. Not surprisingly, GoPro Inc. (Nasdaq: GPRO) stock has dropped to levels it hasn’t seen since the early days after its IPO and is likely to drop further.
Google Inc. (Nasdaq: GOOG). The company is in the news for its $300 million investment in solar energy, which will allow it a hefty federal tax credit as a tax-equity investor in the Solar City Corp. fund. The investment comes on the heels of a massive breakthrough in solar panel technology that allows 40% of the power from sunlight to be harnessed, a 15% increase from regular photovoltaic panels.
Microsoft Corp. (Nasdaq: MSFT), meanwhile, is leading the way as a pioneer of cloud technology, investing billions of dollars in the cloud computing field as it transforms from being a software-only company to one that hopes to command the emerging cloud-and-mobile future. Even International Business Machines Corp. (NYSE: IBM), better known as IBM, is piling in with a reported $10 billion investment in its own cloud expansion program to transform the way we store and receive data.
I wouldn’t advocate investing in either Microsoft or IBM at this point because I think both companies have huge problems ahead, not the least of which is the legacy of having been leaders… once.
But I am absolutely watching with bated breath the score of tiny companies running circles around them, and will let you know when it’s time to make our move.
The winner really will take all. My job is to help you get your share.
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