The last Big Picture column urged investors to ignore the noise pollution of the current environment and to focus on the long-term trends. That is sage advice and it is exactly what we do at Briefing Research (www.briefingresearch.com), Briefing.com's institutional research service.
We seek to identify long-term investment themes that will have an impact across multiple industries and markets. Our identification process is rooted in fundamental, data-driven analysis that helps us drill beneath the headlines and to question conventional wisdom to generate actionable investment ideas.
Briefing Research is currently concentrating on five investment themes. They are enumerated below along with their respective investment premise.
When events unfold to challenge conventional wisdom, opinions can change in a hurry along with the investment landscape.
The aim of "Unconventional Wisdom" is to consider the alternative view to conventional wisdom and to explore potential investment ramifications if, or when, conventional wisdom shifts.
I was recently asked to do an interview to provide our thoughts on how the second half of the year might play out for the equity market. In brief, I said it is our view that the summer months could see some irrational thinking that drives some emotional selling, which then leads to some common-sense investment opportunities.
What exactly do I mean by that?
It is readily apparent again that this is a headline-driven market and that the preponderance of headlines of late are leading market participants to fear the worst and to ignore the relative value that is embedded in the U.S. equity market at current prices. That relative value argument should only strengthen in the event participants get wrapped up in the noise and take a sell first-ask-questions-later approach to things.
Depending on the day -- or even the hour -- the Federal Reserve concluding QE2 will mark the death of the bull market; Greece is going to default on its debt; China is going to suffer a hard landing; Japan will remain mired in recession; Congress will not approve an increase in the debt limit by August 2; earnings estimates are far too high; and the U.S. economy will be lucky to avoid another recession.
It is specifically at a time like this -- when it is getting louder and louder in the echo chamber -- that an investor should be concentrating on long-term investment themes. Doing so helps one take advantage of broad-stroke pullbacks to build positions in companies poised to capitalize on secular growth opportunities. It also helps one avoid getting mentally whipsawed by the day-to-day gyrations of the equity market.
For example, U.S. rail operator CSX Corp. (CSX) is rarely mentioned as a potential beneficiary of the booming demand for coal in China. Research produced for our "Commodities - A Structural Imbalance" investment theme shows why CSX can be thought of in that way, as well as how Peabody Energy (BTU) and other companies are poised to capitalize on secular demand patterns in China.
Conversely, Google (GOOG) is a name that often gets mentioned as a play on the growth of cloud computing. There is more to the cloud computing story than just Google of course.
In our analysis of the cloud computing universe, we are focused on exposing which companies are truly cloud computing companies and which are not. Names like BMC Software (BMC) and Brocade Communications (BRCD) fit the bill for us as cloud computing companies, whereas a company like Cisco (CSCO) doesn't exactly measure up for us as a growth play on cloud computing.
Not sure how to invest in the developing market growth story that is being written by the rise of the middle class there? One doesn't need to look far to do it. U.S.-based multinational companies are a gateway to that growth and will enter the discussion repeatedly with respect to "The Changing Consumer" investment theme.
Think of companies like McDonald's (MCD), Ford (F), Procter & Gamble (PG), DuPont (DD), Johnson & Johnson (JNJ), General Electric (GE), Caterpillar (CAT) and Boeing (BA), all of which are in good position to benefit from the growth of developing economies. Additionally, they offer a more conservative means for investors to capitalize on the growth in developing economies since their sales prospects are linked to the faster-growing economies, and not the fast-money financial markets, of the emerging and developing nations.
Many of these same companies have been highlighted in our "Seeking Yield" investment theme.
Some of the prevailing investment views for "Seeking Yield" include: (1) keeping duration short on the Treasury curve (2) favoring "second tier" corporate credits due to better risk/reward dynamics in the corporate bond landscape and (3) capturing the total return potential provided by blue-chip, multinational companies that pay secure and handsome dividends.
Finally, "Unconventional Wisdom" does not always lay out specific investment ideas. Investment opportunities, however, avail themselves from the unconventional thinking that is central to this theme.
A case in point was presented last September when the conventional wisdom was that the U.S. economy was headed for a double-dip recession at that time. We called attention to economic data, and other key indicators, that suggested otherwise. The conventional view was proven wrong and cyclical sectors/stocks went on to do quite well in subsequent months.
--Patrick J. O'Hare, Chief Market Analyst
(Disclosure: Analyst owns General Electric (GE) stock)