Think about stocks you’d be willing to own for 10 years.
It’s admittedly tough to consider things on that scale when the media’s message — and what you as an investor should do about it — seems to change every 10 minutes. Even so, most investors innately know that the biggest rewards tend to get doled out to those who exercise patience.
With that as the backdrop, there are three sectors that long-term investors can be truly comfortable holding for the next decade … if they can just learn to have faith in the bigger picture and not get sidetracked by the minutia.
Consumers’ need to play video games on their smartphone will fade. Investors will eventually figure out that gold is more of a premise than an asset. Sooner or later, homeowners will stop buying electricity from their utility company because they’re making it themselves using rooftop solar panels.
But people are always going to need washing machines, bulldozers and jet engines.
The industrial sector rarely looks exciting. That’s because it isn’t. This year’s projected income growth of 10.3% trails the broad market’s 12.8% growth track, and next year’s projected bottom-line improvement again trails the overall market’s. Thing is, while the industrials rarely hit a home run, these stocks also avoid the majority of the cyclical problems that zap sectors like financials and materials. The Vanguard Industrials ETF (VIS) is one of your best bets to tap into the ultra-consistent sector.
Top industry in the industrials sector: Water infrastructure.
Every day in the United States, 850 water mains (the pipes that route water from trunk lines to houses) break. Not every year — every day. The crumbling water main infrastructure is a microcosm of deteriorating pipes and fittings found at all points between the water company’s supply and your home. Some experts suggest it will take more than $350 billion to fix all of our water infrastructure problems. The best-of-breed name here may be Northwest Pipe (NWPX).
Yes, it’s cliché, but true nonetheless.
While we all grumble when gas prices rise, it’s rare for consumers or businesses to dial back how much of it they use. In fact, long-term demand for energy is growing regardless of costs. The same goes for heating oil, natural gas, or any other energy-centric commodity. We’re addicted, and alternative energy sources — despite how interesting they are — just aren’t ready to make a dent. The Energy SPDR (XLE) will work nicely in most portfolios.
Top industry in the energy sector: Natural gas.
Another cliché, but one that will get traction for years to come.
When natural gas prices slumped to a low of $2.12 per million BTUs in early 2012, most explorers and miners could no longer produce it profitably, calling into question the long-term viability of natural gas as a business opportunity. That big price plunge, however, was simply the natural response to an equally-ridiculous surge in natural gas prices in 2008, to a high of $13.60.
Now that the volatility kinks have been worked out, the tug-of-war between gas explorers, utility companies, and consumers seems to be stabilizing around $4.00 per million btu. That’s a price that rewards the efficient and cost-effective producers, but doesn’t allow the poorly-run companies to thrive. Look at Chesapeake Energy (CHK) as a way to play.
Yes, like the ever-growing demand for energy, the need for more (and better) healthcare is only going to expand in the future. The world’s population is not only getting bigger, but we’re living longer despite becoming less and less healthy during those longer lives.
Annually, health care in the United States is a $2 trillion industry, and is projected to grow at a pace of about 6% per year for at least the next five years. That’s not to say the sector’s top companies will only be able to grow at that rate, however. Through attrition of their competition and greater economies of scale, the healthcare industry’s top players are poised for reliable double-digit growth. The advent of Obamacare will ultimately fan those flames, even if the impending law shakes down those who would have otherwise skipped buying insurance. The Health Care SPDR (XLV) is the easy way to take on a piece of this trend.
Top industry in the healthcare sector: Biotech
Fifteen years ago, biotech companies were high-risk, fringe investments. Today, biotech is the new pharmaceutical industry. The advent of genome sequencing will soon give biotech developers not just new knowledge, but will also provide tools to develop brand new kinds and categories of drugs. That being said, betting the farm on a one-trick pony — a biotech company that only has one drug in the pipeline — is still a dumb idea. Look for a company with a large library of biopharmaceuticals and a history of successful new drug development. Biogen Idec (BIIB) comes to mind.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.