Many investors are used to looking for sectors to make bets on. Technology. Energy. Financial services. But one top money manager thinks that people should be trying to identify mega trends, overarching global themes, instead.
Hans Peter Portner, head of thematic equities at Pictet Asset Management, said at an event for reporters in New York earlier this month that investors need to avoid market crazes and so-called micro trends.
For the long haul, you have to look at the bigger picture and not sweat the proverbial small stuff…even if that “stuff” gets a lot of attention and may not seem so small at the time.
That means taking a multi-year horizon and not worrying about political shifts or overanalyzing every piece of daily, weekly or monthly economic data. That is what Portner, who oversees portfolios with $67 billion in assets, calls “white noise.”
“We’re not worried about the short-term,” he said. ”Mega trends remain stable.”
With all that in mind, here are three examples of stocks that Pictet owns which benefit from larger mega trends.
Idexx Laboratories (IDXX)
People may be delaying marriage and having kids. But many are still adding to their families by adopting puppies, kittens and other furry friends. That’s why Portner thinks Idexx Laboratories (NASDAQ:IDXX), a company that makes diagnostic testing kits for veterinarians is a great long-term buy.
He joked that many people are “irrational when we deal with pets.” That means spending big bucks to make sure they stay healthy. According to the American Pet Products Association trade group, U.S. households spent nearly $137 billion on their pets in 2022, up about 11% from 2021 and a 40% jump from the pre-pandemic days of 2019. What’s more, $36 billion of last year’s total figure was spent on vet care and related products.
So, it’s no wonder that Idexx’s earnings are expected to increase at a more than 15% clip on average over the next three to five years. The stock isn’t cheap, trading at nearly 40 times earnings estimates for 2024. But Portner said his firm likes Idexx because it is a “resilient” business with a “persistency of earnings.”
California Water Service Group (CWT)
Clean and safe water for drinking, cooking and washing is not just imperative for public health. It’s also a smart long-term investing strategy.
The water crisis in Flint, Michigan made headlines in 2014. Since then, many water utilities have made big investments in infrastructure. That has paid dividends, figuratively and literally.
Portner says that California Water (NYSE:CWT) is a top pick, thanks in part to a healthy, growing dividend that currently yields around 2.1%. Analysts are forecasting steady earnings growth of about 10% a year for the next few years as residents and businesses in the Golden State continue to need clean water. “We continued to invest diligently in our water system infrastructure to provide reliability and quality to customers,” said CEO and chairman Martin Kropelnicki in the company’s most recent earnings report.
The San Jose-based utility also recently raised rates by 4%, which should help boost revenue. And the stock trades at about 22 times next year’s earnings projections. It’s not the most overly exciting of investments, but Portner argues that it’s the consistency that makes it attractive as a long-term bet.
ASML Holding (ASML)
Trade tensions between the West and China haven’t exactly eased in recent years. And with the United States and Europe looking to rely less and less on Chinese manufacturing, so-called “reshoring” is a macro theme that Portner believes qualifies as an investing mega trend.
“If you don’t follow social variables in investing you are making a mistake,” Portner said.
Dutch chip manufacturer ASML (NASDAQ:ASML) is one of Pictet’s bets on the continued interest in the moving of key manufacturing (particularly in the tech sector) away from Chinese factories and back to the West.
ASML is forecasting strong revenue growth through at least 2025 due to this trend. CEO Peter Wennink has often discussed the need for increased “technological sovereignty” in the semiconductor arena. Wennink noted in September 2022 that “world economies are now looking to create chip manufacturing capabilities on their own shores.” That seems to be a main reason why ASML’s profits are expected to jump by an average of 23% over the next few years.
As of this writing, Paul R. La Monica did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
