More Profitable Trends

I wrote the other day about technology as a play on global economic growth. Here are some other thoughts on trends that can make money.

Cash to Electronic Transactions - more and more transactions are moving from paper currencies and coins to electronic transactions. These electronic transactions are being realized through credit card companies (Mastercard, Visa, American Express), credit card and debit card issuers (banks, financial institutions), and transaction processors (Total Systems). Mastercard popped $32 a share on very strong earnings this week.

Aging Video Game Democraphics - the average age of people playing video games is a surprisingly old 33. This means that kids that grew up playing early video games have gotten older and are still playing. Now their kids are playing too, expanding the whole gaming ecosystem. Retailers such as GameStop and video game makers such as Electronic Arts and Activision are benefiting. Microsoft's latest quarter just say a significant boost due to Halo 3 and Xbox 360. This is a trend that will continue.

Commodities - it seems like all commodities are in a long term bull market. This includes agricultural products, fossil fuels, uranium, metals and mining. Part of the run up is due to the falling U.S. dollar in which most commodities are denominated (when the dollar falls in value it takes more dollars to buy the same commodities). But the other reason for the commodities bull market is demand due to strong global growth. There is so much economic growth that there is an enormous need for commodities to build out cities and infrastructure, electricity and energy to support the rising standards of living in rapidly growing industries (China is opening a new coal-fired power plant every week), food for the growing population, corn and sugar cane for ethanol. Exchanges such as CME and ICE are key beneficiaries of the high volatility and high volumes in commodity trading.

Engineering & Construction - part of the global growth story is the extremely strong performance by the world's engineering and construction firms. This has historically been a cyclical boom and bust industry. But there is such strong economic development around the world that the should be a strong bull market in global infrastructure for a long time. One of the most important factors contributing to the long term growth of this industry is the need for energy. Power plants, including nuclear plants, are being planned and constructed in an unprecedented pace. Companies like Jacobs Engineering, Shaw Group, Foster Wheeler, Suez, ABB and Fluor are all beneficiaries of this trend.

Broadband - more and more data is being transmitted over the Internet, intranets, and private networks. This includes a growing reliance on the Internet along with the growth of high bandwidth usage such as enhanced graphics and video. In many respects the technology of the Internet combined with high speed broadband has finally caught up with the client/server vision of the 1990s. Examples of companies benefiting from this trend include Cisco, Akamai, F5, Limelight Networks, and Citrix.

Emerging Market Consumerism - Emerging markets such as China, India and Brazil have a rapidly growing emerging class. Instead of investing in China's export economy, I believe there is tremendous opportunity to invest in companies that will benefit from the increased consumerism of these countries. Although it will take time, the Chinese Yuan will continue to appreciate significantly against world currencies, including the U.S. Dollar. As the Yuan strengthens it will benefit U.S. companies that supplies goods and services to the Chinese population. Examples of companies that are already benefiting include Boeing, Yum Brands (opening a restaurant every day in China), General Motors, Apple and Hewlett Packard.

Falling U.S. Dollar - it appears that the Dollar will continue to fall and be weak against world currencies for quite a while. As the dollar falls U.S. exports will become more price competitive around the world. Last quarter the surge in exports canceled out the weakness in the U.S. economy related to housing. Unfortunately the opposite effect is that Americans will spend more for all imports: cars, consumer products, oil, garlic (something like 80% of the garlic sold in the U.S. comes from China) etc. See "Commodities" above.

Disclosure: at the time of this posting the author was long ATVI, ICE, CSCO, HPQ, MSFT, AKAM, AAPL, SGR, JEC.