With recent macroeconomic events so unpredictable that short-term investing seems more like a spin at the roulette table than anything else, I've turned my attention to long-run trends and stocks that might benefit from them. Here are two trends that are here to stay, and stocks that will benefit from them.
1. Energy prices will continue to increase
In the past 20 years, global energy consumption per capita has increased roughly 8%. This is primarily a result of two countervailing trends: gradual declines or stagnation in consumption per person in the United States, former Soviet countries and Europe, and rapid growth in China and other developing economies. In the long run, of course, the advantage goes to China, India and the combined 5.8 billion people living in developing countries. For an idea of the kind of growth that is possible, consider China, whose energy usage per capita has more than doubled since 1990 and is increasing rapidly. As the growth of consumption in developing countries begins to outpace conservation efforts in developed countries, global consumption per capita will begin a marked upward trend, and when paired with expectations of continued population growth it is easy to see that our supply of cheap energy will be stretched to its limits and beyond. Of course, this is a familiar story that has been told many times, and some have decided that it is a myth, with relatively cheap energy here to stay permanently. They are allowing the short-run trend (conservation in developed countries) to mask the long-term juggernaut (vast increases in consumption as poorer countries develop), and as the decades wear on they will be proven very, very wrong. That is, of course, unless recent attempts at controlled fusion bear any fruit, but I wouldn't hold your breath. What this leaves us with is a world where energy gets very, very expensive. The natural beneficiaries of this are, of course, energy companies in all of their kinds. One of my favorites in the space is Ulta Petroluem (UPL), which has endured a brutal beat down as cheap shale gas floods North America. In the long run, though, even natural gas will join the uptrend as consumers and companies switch to it from more expensive forms of energy (full price per BTU parity, with allowances for convenience and transport costs, should be expected in the long run in my opinion), and with a huge base of reserves and low production costs Ultra Petroleum is a great way to play this inexorable trend. If you've been burned a few too many times by gas and would rather a safer, more stable pick, Exxon Mobil (XOM) remains as attractive as ever, with a decent valuation and vast geographic diversity. In the race to a $1 trillion market cap, my money is on Exxon over Apple (AAPL) any day.
2. Automation will accelerate and predominate
The recent opening of a lights-out plastics factory (meaning no employees are needed for operation so the lights can literally stay off) in Wisconsin, the increasing competence of Google's (GOOG) self-driving car and the proliferation of aerial drones are just a few examples of the next big thing to reshape our world. The industrial revolution pulled people from fields to factories, the automation revolution will push them back out. As robots get increasingly adept at just about everything, automation will proliferate throughout our lives, with our lawns mowed, our cars driven and our things built automatically, without a human finger laid on them (look for "made with human labor" stickers by 2025 or earlier). A new battery technology would help things along quite nicely, but in the end it doesn't matter: people are on the way out when it comes to making things (or checking out groceries, or cashing checks). There are two ways to play this trend: buy the beneficiaries, companies like Ford (F) and General Motors (GM) that may finally be able to control their pension and benefits costs (robots don't typically have any) and will reap the rewards and flexibility of automation, or buy the automators themselves. The best pure-play in the space (and my favorite) is Rockwell Automation (ROK), which helps companies automate their factories and sports a great balance sheet. It has had a rough few weeks, down 19% from its peak and now presents an attractive long-term valuation. The company has a bright future as a leader of the automation revolution.
Disagree or have ideas for super-long term buys of your own? Put them in the comments section. I'd love to discuss!