Many investors believe that nearly all public information is immediately priced into stocks. If that is true then there is little to be gained by analyzing financial documents or technical patterns. For some stocks, current prices even reflect their estimated earnings out for several years.
Fortunately, even if current stock prices reflect all current information and that of a few years ahead, there is still one way to analyze the stock market that could lead to huge returns – looking further out into the future to spot the trends that will change the world.
Trends like the internet revolution in the 90’s and the housing boom of the early 2000’s. Trends like the four-fold increase in gold prices in the six years to 2011 or the spectacular bust afterwards.
These trends carry the weight of trillions of dollars in demand and the power to move stocks up exponentially. You do not need a crystal ball to see these trends shaping, just a watchful eye on the world around you. Because the trends could be a decade out or just now developing, most stock prices will not yet reflect their massive scale.
7 Billion Reasons and Counting
The world’s population did not reach 2 billion until about 1925, since then it has grown by another 5 billion and is expected to reach 8.5 billion by 2025. This population explosion will put new demands on resources, especially food and current agricultural production is far from sufficient. To meet ever higher demands, farmers will need to increase their use of fertilizers and this could mean healthy profits for the makers of potash and nitrogen. Potash Corporation of Saskatchewan (POT) is one of the world’s largest producers of fertilizer for agricultural needs.
After decades of importing immeasurable quantities of petroleum, the United States could be energy independent by 2017. New technology has allowed companies to unlock a hundred years supply of natural gas in North America. In fact, prices for natural gas are up to four times cheaper in the United States than in other countries, especially in Asia. Combine this with innovations in fuel efficiency and alternative fuels and the United States could be on the verge of a megatrend in energy.
This revolution in energy production will affect sectors like manufacturing as it becomes the price to run a factory comes down and foreign companies relocate their production to the States. With the difference in prices, exports of energy products could give a needed boost to our economy. Cheniere Energy (LNG) owns one of the first natural gas terminals expected to begin exporting liquefied natural gas around the world.
The change to an older America as the baby boomers retire is nothing new but there are still megatrends that have not yet been discovered. As people age, one of their top concerns is staying independent and in their homes. This becomes difficult with increasing needs for care but the technology is already there to provide monitoring services.
The ADT Corporation (ADT) provides home security and monitoring services to homeowners in the United States and Canada. While the company does not currently offer a monitoring-type service for the elderly, I think the demand could be huge and the company is the best positioned for the trend.
The three ideas above are just examples of the kind of analysis you need to do to uncover these megatrends of the future. It can be an interesting and fun exercise, almost like daydreaming of what the world of the next decade might look like. Partner with another investor to discuss ideas and pick three to five stocks that are best positioned to take advantage of a couple of the trends.