Industrial automation, an aging society, self-driving cars, infrastructure and water
Investors often to pay too much attention to the short term, and overlook lasting long-term trends that ultimately matter more to their portfolio.
Sure, the recent government-shutdown fight was difficult to ignore. And yes, it’s hard to look away from the volatility in bitcoin. However, the best investments you can make tend rely on big-picture trends, not the latest fashionable headlines.
This kind of “megatrend” investing, where investors follow durable trends over many years, requires foresight and patience. But when done right, the gains can be dramatic. Best of all, investors can often tap into powerful changes in the global economy that don’t rely on a broader bull market to deliver substantial profits.
After all, widespread adoption of new technology or fundamental shifts in demographics don’t rely on an uptick in consumer confidence or GDP. They happen because of bigger forces, and can resist typical Wall Street trends as a result.
In 2018, a few such megatrends appear to be in the early stages of development. Here’s how to invest in them:
Industrial automation
In the 21st century, American manufacturing jobs aren’t really being stolen by low-wage workers in China. In truth, they are being taken by robots.
Just look at manufacturer First Solar FSLR, +0.17% which is actually undercutting cheap Chinese panels with even-cheaper solar cells manufactured in Ohio. It achieved this in part by recently laying off hundreds of workers and fully automating the fabrication process. In the words of its CEO, First Solar is “now in a better competitive position than ever.”
We can moralize about the loss of jobs and the rise of robots. But as investors, it may be wiser to simply embrace this megatrend and profit from it. That means investing in some of the biggest names in automation, including Rockwell Automation ROK, +1.65% and Siemens AG SIEGY, -0.53% SIE, -0.83%
For those looking to play a more diversified group of stocks that include smaller and niche robotics companies, rather than just large firms, it is worth checking out the Robo Global Robotics and Automation Index ETF ROBO, +1.18% The fund is a good mix of about 90 stocks around the world, including midcaps and small caps. It’s up about 50% in the last 12 months, too, proving the profit potential of this megatrend in manufacturing.
An aging society
There’s much attention paid to the graying of America, with the widely touted fact that the number of Americans age 65 and old will double to almost 100 million across the next four decades or so. But our nation is hardly alone, as advances in modern medicine and increased standards of living raise life expectancies around the world.
In fact, nations such as Japan, Switzerland and Australia all have longer life expectancies than the U.S. right now.
This trend isn’t exactly a new phenomenon, as life expectancies steadily have been on the rise for years and many demographers have predicted the shift. However, with even the youngest cohort of Baby Boomers now in their mid-50s, the demographics of this key generation is reaching an important tipping point in 2018.
There are many ways to play this trend via health-care stocks, but my favorite methods include a mix of tried-and-true big pharma names and up-and-coming companies researching the next generation of treatments for seniors.
In the first category, I like diabetes giant Novo Nordisk NVO, +1.18% NOVOB, +1.12% and cardiovascular and respiratory drug powerhouse Gilead GILD, +5.26% As for the companies working on cures for cancer and Alzheimer’s, I like a diversified basket of smaller biotechs via the SPDR S&P Biotech ETF XBI, +0.82%
Also read: Twice as many older people will suffer from four or more diseases by 2035
Self-driving cars
Another unfortunate headline for self-driving cars cropped up this week as a Tesla TSLA, +1.54% vehicle operating on Autopilot crashed into a firetruck on a highway in California. But on balance, the news over the last few years has been decidedly encouraging for the future of autonomous cars — and 2018 may be the year these technologies truly come into their own.
Beyond the much-watched moves at Telsa, Toyota TM, +1.00% 7203, +0.18% has promised a fleet of self-driving taxis to service Olympic spectators and athletes in 2020, and Volvo VOLVB, +0.22% is testing self-driving work trucks for the sanitation and mining industries.
One way to play this trend is to invest directly in the automakers you expect to succeed. However, with no ready-for-market products just yet, a safer bet may be to invest in component companies that are servicing the self-driving car industry at large. These include Swedish sensor company Autoliv Inc. ALV, +0.56% digital auto components supplier Delphi Automotive DLPH, +0.99% and chip maker Nvidia NVDA, +2.95% that already has its Tegra processors in everything from Teslas to Honda Civics.
There’s no good ETF play on self-driving cars just yet. There are some loosely related ones like the First Trust NASDAQ Global Auto Index Fund CARZ, +0.12% that invests in automakers and component companies, but it is much broader than this theme.
Still, you don’t want to wait until 2020 to buy into this megatrend. If you wait until self-driving cars are common on the roads, you’ll be too late.
Infrastructure
While the government shutdown and spending fights may have led some to believe that nothing ever gets done in Washington, there remains a serious need for an infrastructure-spending bill
In 2017, the American Society of Civil Engineers gave America’s infrastructure an ugly D+ grade — and you can be sure that no politician wants to preside over a downgrade to an F in 2018. Furthermore, infrastructure continues to pop up as a popular bipartisan topic both because of the need and ability to create jobs for middle-class Americans.
That makes concrete and aggregate companies like Vulcan Materials VMC, +1.86% and U.S. Concrete USCR, +0.66% are worth a look, as are construction-materials companies like steel stock Nucor NUE, +1.91% and glass and plumbing firm Masco MAS, -0.22%
Beyond domestic infrastructure, there remains huge appetite for spending projects in emerging markets as nations like India and China look to growth their economies as well. That makes investments like the PowerShares Emerging Markets Infrastructure ETF PXR, +0.48% interesting investments for the next several years.
Water
A twist on the megatrend of increased infrastructure spending is a focus on water and water utilities.
Potable water is a basic necessity, and one that many folks take for granted. Yet after recent troubles that include the toxic water system in Flint, Mich., to persistent droughts in California, it should be obvious that water issues are a big deal — and a big investing opportunity.
Many elements of America’s water infrastructure are aged and beyond repair; what they need is to be wholly replaced, but cash-strapped municipalities often are not up to the task. That’s where publicly traded water companies such as American Water Works AWK, +0.49% Artesian Resources ARTNA, -0.79% and York Water Company YORW, -1.26% come in. These for-profit companies operate much like publicly traded electric utilities, and offer the same measure of stability — but with much more growth potential.
For those who prefer ETFs, the PowerShares Water Resources ETF PHO, +0.60% is a good choice.
The electric-utility landscape is very mature and established after decades of consolidation. However, the emergence of for-profit water utilities is a very new occurrence and is in its early stages. Investors looking to play this megatrend will want to get in on the ground floor.
