As 2013 unfolds, it's clear that U.S. household debt has declined as a percentage of the nation's gross domestic product and remains on track to continue dropping.
This year, deleveraged consumers will likely succumb to their pent-up desires to spend money, providing a lift for consumer staples and consumer discretionary stocks.
Buoying consumers' spirits is a rebounding housing market. According to CoreLogic, a leading provider of mortgage data, home prices are up about 6 percent from a year ago, placing them on a path for their best year since 2005.
Meanwhile, corporations are sitting on huge hoards of cash: up to $1 trillion for S&P 500 companies, as of mid-2012. Managers have already signaled that they plan to tap this money in the coming months for long-deferred IT investments, a boon for technology stocks.
What's more, the World Bank in December upwardly revised its projection for China's GDP growth in 2013 from 8.1 percent to 8.4 percent, as the globe's second-largest economy undertakes ambitious infrastructure projects and other stimulative policies.
China will serve as the growth engine for the aviation sector's resurgence; see my article The Red Dragon Spreads its Wings for my favorite play on soaring aircraft demand in China.
The confluence of these trends will lift financially fit companies in 2013 and beyond. Rising consumer confidence and spending will particularly benefit financial sector stocks, most notably Discover Financial Services (DFS).
In December, Discover reported higher fourth quarter earnings as total loans increased and the company wrote off fewer delinquent balances. Earnings reached $541 million, or $1.07 in earnings per share (EPS), an increase of 6 percent from the same period a year ago.
The rate at which the company wrote off unpaid credit card balances dropped to a historic low of 2.29 percent. For the full year, Discover's revenue reached $7.6 billion, an increase of 8 percent compared to the previous year, while earnings hit $2.3 billion, a year-over-year increase of 5 percent.
With a price-to-earnings (P/E) ratio of only 8.7, Discover is a relative bargain considering its growth prospects.
Healthcare is another sector that's positioned to prosper, as an estimated 32 million previously uninsured Americans receive coverage under the Patient Protection and Affordable Care Act, aka Obamacare.
Healthcare costs are expected to comprise one-fifth of US GDP by 2021, providing long-term growth prospects for health sector holdings.
Drug makers with deep pockets and robust product pipelines will profit handsomely from Obamacare, as millions of newly insured patients are able to purchase previously unaffordable pharmaceuticals.
A notable winner will be Baxter International (BAX), which provides drug treatments for hemophilia, kidney disease and other medical conditions.
In December, Baxter announced it would purchase Swedish dialysis company Gambro AB for $4 billion. Gambro generated sales in 2011 of $1.6 billion. Baxter intends to finance the acquisition with $1 billion in cash and $3 billion in debt. Management has assured investors that the pending deal would not adversely affect the company's current dividend payout ratio of 40 percent.
Roughly 2 million people in the world today are on dialysis, a process for removing toxins from a patient's blood. The acquisition of Gambro will enhance Baxter's dialysis products portfolio, to help the company meet rapidly expanding dialysis demand.
The company sports a P/E ratio of roughly 16.6, an attractive valuation compared to the S&P 500's P/E of 17.7. What's more, the stock's price is hovering at a 52-week high.
Obamacare also puts Novartis (NVS) in a particularly sweet spot, as the drug giant launches new treatments in the booming field of ophthalmology.
During the next 15 years in the US, the graying of the population is expected to boost the number of cataract patients by 60 percent and glaucoma patients by 50 percent.
The drugmaker's patents on its blockbuster Diovan, a popular hypertension medication that accounted for 10 percent of the firm's annual sales, have expired or are scheduled to expire over the next few years.
However, Novartis has built up a strong pipeline of new drugs to compensate for sales lost to generic versions. With a yield of 3.3 percent, the stock offers both growth and steady income.
These secular trends will receive impetus from Obamacare's expansion of coverage, benefiting Novartis for years to come. For another angle on how investors could play Obamacare, read Jim Fink's article Staffing Companies: How to Profit from Obamacare's Job Outsourcing.