New reports from the likes of the IMF and McKinsey hypothesize
that global growth rates will drop by 40% or more over the next
half century. The growth-killers they point to are an overabundance
of debt, unequal wealth distribution, and an aging population.
Don’t fall for it.
For one thing, people have been calling for the end of things
since, well, the beginning of things. The Internet and mass media
merely magnify the rhetoric and give the legion of doomsayers a
platform and make them harder for individual investors to
ignore.
While we’re at it, let me remind you that this is the same crowd
calling for the end of the financial universe as we knew it in
March 2009… right before the SP 500 took off on a 180% run
higher. I sure hope none of you decided to sit that one out.
For another thing, every great crisis is, in fact, a realignment of
opportunity. Weaker players get weeded out, stronger players
consolidate their market share, and profits mount.
This is especially true when you understand why AND what one of
the single most powerful
Unstoppable Trends
of all means for your money – Technology.
We’re going to talk about that today and share my take on an $8
stock with the potential to set you up for profits perfectly.
First, here’s the secret growth “engine” the doom-and-gloomers
are missing.
The Naysayers Have a Terrible Track Record
The alarmists sure are convincing.
A new McKinsey Global Institute Report is particularly grim.
According to the world class consultancy, global growth will
falter, bringing with it a roughly 20% decrease in GDP per capita
over the next 50 years due a nasty combination of shifty global
finances and an aging population.
To hear McKinsey tell it, the great century-long run we’ve
enjoyed is over and the 1.8% average growth rate the world has
enjoyed is done. You may as well hang up your spurs and go
home.
The argument reminds me a lot of Peak Oil…
In case you’re not familiar with Peak Oil, it’s a theory based
on M. King Hubbert’s theory that the maximum rate of petroleum
extraction was reached around the year 2000 and that we’re
supposedly entering an age of terminal decline. Once held
sacrosanct, it’s now widely regarded as wrong.
The fracking boom and technological advances have made a mockery
of almost every apocalyptic energy-related projection out there.
(That’s the Technology Trend at work). Hubbert himself projected
peak oil in 1995. When that didn’t happen, geophysicist Kenneth
Deffeyes noted that he was 99% confident Peak Oil would happen in
2004. Even T. Boone Pickens, arguably one of the most famous oil
men of all time, said that we will “never again” pump more than 82
million barrels a day in 2004.
Yet the world produced 94 million barrels per day in the last
quarter of 2014, according to the IEA.
The growth in U.S. production of more than 3.5 million barrels
today has almost equaled the entire increase in world oil supplies,
according to the
Financial Times
.
To paraphrase George Monbiot, who writes for
The Guardian
, “there’s enough [oil] to fry us all.”
Unfortunately for investors who bought in to Peak Oil, they
stopped investing under circumstances very similar to today… and
missed the 704% run up in oil to a peak of $142 a barrel in June
2008. Of course it’s fallen back a lot, but the profit potential
there was huge. It still is… but that’s a story for another
time.
My point is that, just as the doomsayers left technological
improvement and extraction gains out of their original arguments, I
believe the “global growth is dead” adherents are missing something
equally big.
Remember, we’re dealing with unstoppable trends here, and there
are trillions of dollars on the move as a result.
Here’s the key.
They’re Leaving Productivity Out of the Equation
It’s not well-known, but labor productivity in developed
economies has been rising at an unbelievable pace. Here’s how
productivity in America’s manufacturing sector has changed
quarter-to-quarter since the Great Recession began:
Quarterly Percent Change in Productivity of the U.S.
Manufacturing Sector, 2009-2014
The above chart shows how the level of worker productivity of
each quarter compares to that of the quarter immediately before
it.
Contrary to what the headlines seem to portray, the U.S. is on a
13-quarter-and-counting streak of increased productivity in its
manufacturing sector – and this at a time when the portion of the
population aged 65 and older has climbed from 13.2% to 14.7%,
according to
Economix
. That’s a change that has resulted in more than 10,000 Baby
Boomers retiring each day, to put the 1.5% increase in context.
Full data is not yet available for the rest of the world in
2014, but the trend through 2013 is a very positive sign that
global productivity rates tracked this trend, too, for developed
and developing economies alike. A report from the non-profit
research firm The Conference Board notes that worldwide labor
productivity grew by 1.7% worldwide in 2013.
Some countries like China, Brazil, India, and Mexico grew even
faster. According to the same report, their productivity rates
climbed by 3.3% on average in 2013.
I don’t know about you, but that’s yet another sign to me that
these countries – which are in some cases growing far more quickly
than the 5% growth rate that was celebrated in the U.S. last
quarter – will be powering global growth for decades to come.
Critics charge that can’t continue. I beg to differ.
Productivity and output
have
continued – each and every time humanity has seemingly hit a
stumbling block. Productivity gains are firmly rooted in
corresponding technology development. And, in each case, there’s
been a new, golden age of investing at hand because they have
overwhelmed demographics shortcomings that would otherwise kill
capitalism.
These productivity gains are firmly rooted in technological
advances, mainly centering in communication. Ironically, the value
of the Technology trend’s role in increasing worker productivity
was documented by none other than McKinsey itself.
In 2012 the firm noted that improved communication technology
could cause labor productivity in factories and entire corporations
to rise by 20% to 25%. The observation came only a year after MGI
principal Michael Chui touted the firm’s 2011 report that labeled
big data the next frontier for increased productivity.
I know this is just one data set but I chose it to make a point
– debt and aging populations just aren’t the death knell to global
growth they’re reported to be.
Growth won’t benefit all sectors equally, of course, but it will
produce some major winners. Heck, they already have.
For example, medical supplies and healthcare have seen a surge
in demand as populations get older, resulting in profits of more
than 100% for Becton, Dickinson and Co. (NYSE:
BDX
) since I recommended it to
Money Map Report
readers. The booming populations have also created demand for
companies dealing in infrastructure, fueling the 97% return
subscribers enjoyed with American Water Works Co. Inc. (NYSE:
AWK
) since I recommended it in the
Money Map Report
. Even Raytheon, a defense contractor, is tied in, albeit via War,
Terrorism Ugliness, to the tune of 158% returns.
Each of the companies I’ve just mentioned remains a good, solid
buy. But they’re expensive at this point.
So I recommend considering another play that sits squarely at
the nexus of Technology and Demographics. It has just as much
profit potential, perhaps even more, considering it’s only about $8
a share right now.
Your “Twofer” Stock to Play Construction and Agriculture
CNH Industrial NV
(NYSE:
CNHI
) is a London-based company that was formed in 2013 as the result
of a strategic merger. Combined from Fiat Industrial, a
manufacturing company specializing in the production of tractors
and cars, and CNH Global NV, a company that dealt in construction,
it now offers a twofer: It designs and sells equipment to be used
in both the construction and agriculture sectors.
Just as importantly, it has a global reach that will allow it to
thrive with growing markets. As of January 2015, the company
derived just 28% of its revenues from North America, with 42%
stemming from Europe, Africa, and the Middle East. 11% came from
the Asia/Pacific region, while the remaining 19% of revenues were
made in Latin America.
But CNHI is showing signs of diversifying its revenue stream
even further. In July 2014 it announced the opening of its new
manufacturing complex in Harbin, China. It’s already the biggest
agricultural equipment manufacturing plant in northeast China,
extending over 400,000 square meters.
The plant is a $100 million investment on the company’s part,
and in CEO Richard Tobin’s own words, “an important milestone that
marks our commitment to the development of agriculture in
China.”
CNHI now has 62 manufacturing facilities worldwide, up from just
38 facilities in early 2014, with a brand network that’s been
established in more than 170 countries.
It was one of the rare companies this earnings season to meet
the expectations Wall Street set up for it, posting the earnings
per share of $0.12 that analysts predicted. But it surprised in a
good way on revenue, bringing in $8.37 billion for the quarter,
$160 million more than analysts had foreseen.
There was also one nugget in its Q4/2014 report last January
that analysts ignored, but that I love to see. The company has been
sharply reducing its merger-related debt. In Q4/2014 alone, the
company whittled down its net debt by $1.2 billion – and it did
this while devoting $1 billion to capital expenditures and paying
out $400 million in dividends to shareholders over the year.
In a year that was challenging for construction companies, those
are very impressive feats – and a sign of very shrewd
management.
The stock is also cheap, trading around $7.60/share with a P/E
ratio of just 11.2. Throw in the 3.60% dividend yield, and you have
a very solid growth and income opportunity.
I expect CHNI to have a good 2015 and an even better long-term
performance. After all, people have to eat, and they have to have a
place to live.
Editor’s Note:
Keith expects CNHI to have a very good 2015 -and he’s
focused on stocks behind Trends that are still more powerful.
That’s why his very first recommendation to
Total Wealth
readers saw a 100% gain within six weeks – and it’s still got
plenty of upside over the months and years to come. For a full
and free report on the company, including its ticker symbol, sign
up for
Total Wealth
– it’s free!
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