Equity investors should ignore the “incessant din” of current news and focus on long-term secular trends, advises Morgan Stanley Wealth Management strategist Dan Skelly.
Themes to Invest In
Such trends “typically entail innovative or disruptive technologies, resource discoveries, demographic shifts, or changing consumer preferences,” such as US natural-gas infrastructure, the aging baby boomers, China’s healthcare, the emerging market consumer.
Three new ones to consider are:
- Media content monetization: There are new and increasing revenue streams for providers of hit shows such as broadcast networks and diversified media companies.
Key growth drivers for media businesses are rising affiliate and retransmission fees, which are the content provider’s share of the subscription fee a viewer pays a cable or satellite operator, and the fees the operators pay a broadcast or content provider.
“In addition, content licensing, distribution agreements with on-line video partners, and growing international pay-TV markets, should support solid growth for the media sector.”
International pay-TV surpassed 50 per cent market penetration in 2012, up from 36 per cent in 2005.
- Railroads: Fundamental industry dynamics – in particular pricing power, have improved dramatically and future price increases averaging 3 to 4 per cent a year are probable.
“Railroads will remain attractive to shippers relative to trucks because they are far more energy-efficient… The amount of energy expended to transport one ton a distance of one mile by rail is about 20 per cent that of trucks.
“In addition, railroads have an enormous barrier to entry. The time and astronomical costs required to replicate a vast rail network makes a new entrant very unlikely.”
- New financial transaction models: There is increasing growth in credit card and debit card business, and market-share gains for e-commerce – “both trends are driven by improving technology and consumers’ preference for convenience.”
The key beneficiaries are likely to be the leading network-payment companies, because of the sector’s oligopoly-like structure. Expect global-purchase volume to grow at an annual rate of at least 11 per cent over the next few years, driven by increasing electronic payments and faster growth in the emerging economies.
“Outside Europe and North America, the percentage of the population with banking relationships is still low.” As unbanked individuals enter into such relationships, large numbers are likely to adopt electronic payment methods.
In e-commerce, “long-term opportunities for increasing market share versus brick-and-mortar retailers remain compelling.” As consumers increasingly go on-line for greater choice, competitive pricing, and time-saving convenience, e-commerce penetration will accelerate, both in the US and elsewhere.
“We favour on-line retailers with proven technology advantages, scale, strong brand equity and established track records for best-in-class user experience.”
CopyRight – OnTarget 2014 by Martin Spring