Long-Term Investing Strategies: The Final Four Ways to Invest in Global Demographic Trends

[Editor's Note: Frequent Money Morning contributor Larry D. Spears - a noted options expert and published author - brings us a two-part story on eight global-investing trends. We covered the first four yesterday (Monday). Today (Tuesday) we'll cover the last four trends, as well as the accompanying stock-market recommendations.]

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Stock-market icon Warren Buffett once said that "our favorite holding period is forever."

Clearly, if you want to be a stock-market winner, you need to find profit opportunities that offer a predictable, long-term payoff.

And one of the best ways to do that is to capitalize on global demographic trends.


Eight Top Trends to Invest In

To assemble this list of trends, we looked at a variety of reports from government agencies like the U.S. Bureau of Economic Analysis (BEA) and the National Intelligence Council (NIC), quasi-governmental units like the U.N.'s World Health Organization (WHO) and the International Monetary Fund (IMF), several international banks and business groups and some independent institutions like the Pew Research Center, and came up with eight rising demographic waves on which they nearly all agree:

  1. The world's population is growing faster than ever – in numerical, if not percentage, terms – and it's getting older.
  2. The geopolitical leadership of the world is shifting.
  3. The "middle class" is emerging in the developing nations, driving an unprecedented shift of wealth from the West to the East.
  4. The population growth and burgeoning middle class is creating a steady rise in demand for energy and consumer products, which will keep prices moving higher.
  5. Population growth is steadily magnifying the need for more food and water, which is already generating critical shortages of both in some parts of the world.
  6. Human beings continue to be messy creatures, with an ever-increasing need for sanitation and waste-disposal services.
  7. Despite major peace initiatives, conflict among the human race continues to persist.
  8. And a mushrooming global debt burden stands as a threat to both the world's currencies and its established trade systems.

Top Profit Plays

Now that we've set the scene for you, let's now take a look at each of the demographic trends – and the accompanying investment recommendations – in detail. Since we looked at the first four of our list of eight yesterday, we'll look at the final four today.

5. Serious Shortfalls: We've already covered the specifics of the growing global water and food shortages in earlier Money Morning articles, so we won't say more here – except to note that 1.15 billion people currently lack access to clean water, and the World Health Organization (WHO) estimates more than 60% of the world population is underfed or actually starving. And it's getting worse – the United Nations estimates more than 60 nations will face food shortages in the next decade and 67% of the world population will be "water stressed" by 2025.

On the water front, I'd again suggest two stocks recommended in the earlier water article – Danaher Corp. (NYSE: DHR), recent price $51.42, and Veolia Environnement S.A. (NYSE ADR: VE), recent price $31.45. The Claymore S&P Global Water Index ETF (NYSE: CGW), recent price $20.85, also remains a good choice for those who prefer fund investing.

In the food sector, two good choices would be Archer Daniels Midland (NYSE: ADM), recent price $35.42, which has the skills and infrastructure to collect crops from the fields, store them and process them into marketable foodstuffs, and farm-equipment manufacturing giant Deere & Co. (NYSE: DE), recent price $93.02. The services of both will be in high demand as food production rises. Plus, neither firm is dependent on the fortunes of farmers in any single growing season or geographic region.

Fund investors can check out the well-diversified Market Vectors Agribusiness ETF (NYSE: MOO), recent price $55.09.

6. Talking Trash: With increased consumerism and a larger middle class comes more trash and the need for better sanitation services. Toxic and nuclear waste disposal is also a growing concern. Once again, the specifics of these problems were covered in a recent article that appeared in Money Morning, so we'll merely reiterate two of our recommendations from that report and offer one new one.

U.S. Ecology Inc. (Nasdaq: ECOL), recent price $17.06, and its subsidiaries provide industrial-waste-management services to government and commercial clients. Those clients include refineries, chemical plants, manufacturers, electric utilities, steel mills, and medical and academic institutions. The challenges include disposing of waste materials that are radioactive, classified as hazardous, or that contain polychlorinated biphenyls (PCBs). The company also handles and disposes non-hazardous industrial waste materials. Given the disaster in Japan, this recommendation may be far more timely now than when it was first recommended earlier this month. The company is actually a pioneer in radioactive-waste disposal, since it has dealt with nuclear materials since 1952.

The other suggestion contained in the early Money Morning report was the Market Vectors Environmental Services ETF (NYSE: EVX), recent price $52.63. This fund tracks the NYSE Environmental Services Index, which is composed of public companies involved in the management, removal and storage of consumer waste, industrial byproducts and related environmental services.

Our new suggestion, also linked to trend No. 1, is a growing medical-waste business, Stericycle Inc. (Nasdaq: SRCL), recent price $88.30. Stericycle has nearly 250 waste-processing or collection sites in nine countries, including Argentina, Mexico and the United Kingdom. It also has been on an aggressive growth campaign, acquiring 23 other companies in 2009 alone, including seven international firms. As such, it has no major competitors left. The company earned $2.52 a share in 2010 on revenue of $1.43 billion, with an increase to $2.81 this year and $3.19 in 2012. The acquisitions used up most of Stericycle's cash, so there's no dividend.

7. Battle Lines: Until aliens from outer space land and finally force earthlings to unite, it seems likely there will be a steady succession of wars, regional conflicts and terror events. About the only way to play this trend is to invest in the companies that make the weapons to supply the fighters – or defend against them. That means looking at the likes of:

  • Raytheon Co. (NYSE: RTN), recent price $51.14, which specializes in defense, homeland-security and other government markets and is a leader in the development of missile-guidance systems, radar equipment and satellite technology. Raytheon earned $4.86 a share in 2010 on revenue of $25.1 billion, and earnings per share (EPS) were projected to increase to $4.98 this year and $5.53 in 2012. The stock pays a dividend of $1.50, giving it a yield of 2.93%.
  • Sturm Ruger & Co. (NYSE: RGR), recent price $22.06, is one of the leading makers of pistols in the United States and one of the few publicly traded small arms manufacturers in the world. Sales have risen steadily in the years since 9/11. The company earned $1.46 a share in 2010, but is only expecting a modest increase to $1.52 this year. The stock pays an annual dividend of 33 cents.
  • For broader coverage, fund investors can look at the PowerShares Aerospace & Defense ETF (NYSEArca: PPA), recent price $19.98, which tracks the performance of the SPADE Defense Index, a portfolio of companies in the development, manufacturing, operations and support of systems used by U.S. defense forces.

8. The Global Debt Bomb: In spite of their best efforts – and because of the concerns represented by many of the above-listed trends – the United States and other developed nations can't seem to get control of their spending, or successfully reduce their growing debt burdens. Although world monetary authorities are resisting it, more debt will eventually mean more inflation and a further debasement of leading international currencies. There's only one way to fight such an eventuality: Invest in hard assets such as gold, silver and other related holdings.

The closest you can get to actually holding the metals without buying a basement full of bullion or coins is to look at such funds as the SPDR Gold Trust ETF (NYSE: GLD), recent price $140.03, or the iShares Silver Trust ETF (NYSE: SLV), recent price $36.78. Both hold actual physical gold and issue stock in "baskets" of shares (100,000 per basket for GLD). As such, their prices fairly well track those of the actual metals, minus expenses.

There's only one other thing to note with respect to investing based on emerging or developing demographic trends – once you make a selection, you can pretty much stick with it.

That's because such trends tend to continue evolving in very predictable manner. After all, with every year that passes, each surviving member of the human population merely gets a year older, generally maintaining their same life patterns and preferences.

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  1. SN | March 29, 2011

    Great idea to give investment advice for the coming decades and not just months. Too bad they're on the US stock markets and thus in dollars which makes them less attractive for anyone bearish on the dollar.

  2. Chet Buchna | April 24, 2011

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