Stocks to Buy for 7 Demographic Mega-Trends

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Smarter men than I have noted that a successful long-term investment relies on demographic trends as much as a company’s balance sheet or management. Shifts in shopping habits, population and technology are big drivers for some of the biggest names on Wall Street, from  polestars like Warren Buffett to the next generation of traders like James Altucher.

As lives get longer, modern medicine becomes increasingly valuable to the elderly. China’s middle class and cities are growing at breakneck paces. There are a lot of hungry people in the world creating massive strain on food supplies and significant inflation.

These are just some of the trends that define our current global economy, and thus define the stock market. It’s not rocket science – just pay attention to the headlines, and then apply what you’ve learned Wall Street.

To show you what I mean, here are 7 demographic shifts under way in the global economy right now – and the investments that could prosper as a result.

Grocery Mix
Source: iStock

1. Too many people, not enough food. Agflation headlines abound these days. You know things are bad when it’s seen as an improvement that India’s food prices are up “only” 10% over the previous year. The shortage and subsequent inflation across everything from onions to palm oil to corn can only logically be fixed one way – by growing more food. That’s where fertilizer powerhouse Potash (NYSE: POT), biotech seed giant Monsanto (NYSE: POT) and farm equipment icon Deere & Co. (NYSE: DE) come in – or the diversified Market Vectors Agribusiness ETF (NYSE: MOO).  What’s more, not only will higher crop yields reduce prices and feed more people, it is actually in the best interest of farmers to produce more. According to new data released to Congress by the University of Missouri this week, soaring food prices should result in record farm income during 2011. So growing more means selling more at higher prices.

2. Massive U.S. debt. Whether you are a member of the apocalyptic camp that predicts we will all be trading in gold bullion and canned goods by 2015 or whether you are just a regular Joe who sees evidence of rapid inflation (see item #1) and is looking to hedge their bets, precious metals make sense right now. Specifically, physical gold or silver investments like the SPDR Gold Trust ETF (NYSE: GLD) or the iShares Silver Trust ETF (NYSE: SLV) make sense. The bottom line is that as long as fear and inflation are moving up, gold and silver will too.

pharma homepage3. Generic drug boom. If you’re looking to get in on the next big blockbuster drug to will treat Alzheimer’s or cancer, biotechs are your best bet. But if you’re looking to cash in on already proven medications that are simply getting cheaper and more readily available, consider generic drug powerhouses Perrigo (NASDAQ: PRGO), Dr. Reddy Labs (NYSE: RDY) and Teva Pharmaceuticals (NYSE: TEVA). While you may recognize Teva’s name on some of your prescriptions in the U.S., don’t discount Perrigo’s Mexico operations or India powerhouse Dr. Reddy. An emerging market footprint could help these generic drug stocks benefit big time by finding a broader customer base to serve.

4. Wealthy urban Chinese travelling more. The growing middle class in China is fertile ground for stock pickers of all stripes. So allow me to take a flier (pardon the pun) on a demographic trend that could mean big business in the years to come. The crowded state of big-city life, the restriction on travel Visas in the People’s Republic and the strong sense of nationalism all point to big domestic tourism in China. What’s more, at the end of last year, The New York Times reported that, “On average, China’s 1.3 billion people each take just 1.3 trips a year. By 2015 the figure is projected to rise to 3.3.” So how can you ride this booming China travel trend? An aggressive play would be Ctrip.com (NASDAQ: CTRP), China’s version of Priceline.com (NASDAQ: PCLN). With a market growing at 9% year, travel growth in China naturally means an in-kind boost in travel booking. Other long-term plays on this trend include China Eastern Airlines (NYSE: CEA) and China Southern Airlines (NYSE: ZNH) – though rising crude is certainly a threat to these carriers.

oil investment

5. Expensive oil. Speaking of rising crude prices, let’s talk about a specific way to play the oil surge. To me, the most logical play on the current crude oil surge and economic uncertainty is in oil trusts like the BP Prudhoe Bay Royalty Trust (NYSE: BPT) or the Permian Basin Royalty Trust (NYSE: PBT). These “depletion” trusts will eventually run out of oil, but not for over a decade. In the meantime, investors can enjoy hefty profit-sharing as the oil is pumped out. Take the Prudhoe Bay trust, which yields about 8% in dividends and has appreciated over 20% in share price over the last 52 weeks. With the end of royalties predicted to occur sometime in 2024, there’s a lot of juice left in this stock for the squeezing.

6. Unrest in the Middle East. With each passing day, the chances of the United States staying out of the massive political unrest sweeping across the Middle East becomes smaller and smaller. As the prospect of peacekeeping or all-out occupation forces seem likely in Lybia or Bahrain or Egypt, any serious cuts in defense spending become less practical. As a result, blue chips in the sector like Boeing (NYSE: BA), Raytheon (NYSE: RTN) and Lockheed Martin (NYSE: LMT) have all doubled the market’s returns since the first of the year. ETFs like the PowerShares Aerospace & Defense Portfolio (NYSE: PPA) and the Dow Jones U.S. Aerospace & Defense Index ETF (NYSE: ITA) have also outperformed the market year-to-date.

7. Humans are filthy. The smartest investor knows that even if you’re rich, your trash stinks too – and somebody has to clean that trash up. Garbage giant Waste Management (NYSE: WM) has underperformed the market in the last several months due to the impact of expensive oil, but in the long run this company is only going to see bigger business in the U.S. For a specific play on the growing medical waste business, Stericycle (NASDAQ: SRCL) is an even better bet for those looking to play the trash trend. SRCL has seen shares surge almost 60% in the last year – and with no major competitors, it is unlikely to see any challengers to its current perch on the top of the trash heap.

Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks or funds named here. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.


Article printed from InvestorPlace Media, https://investorplace.com/2011/03/stocks-to-buy-demographic-shifts-investing/.

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