Will Your Investment Stand the Test of “TIME”?
Last year, the S&P 500 index was up 31.8%. The forecast for 2014 varies, but most analysts seem to think gains will be in the 10% range.
There are four sectors that I believe are poised for gains similar to last year's. My acronym “TIME” is an easy way to remember them.
The sectors are technology, industrials, materials and energy. In a recovering and, indeed, growing economy, these four sectors will always do well.
Let’s review them one at a time. After that, I’ll discuss a simple way to play all four sectors.
2013 was a ho-hum year for technology. Significantly feeling the loss of Steve Jobs, Apple Inc. (Nasdaq: AAPL), once known for its jaw-dropping, market-creating devices, simply introduced newer versions of previous technology last year.
There was very little game-changing technology introduced in 2013, and that led to lackluster gains from the industry stalwarts. Former technology giants like Intel Corporation (Nasdaq: INTC), Microsoft Corporation (Nasdaq: MSFT) and BlackBerry Limited (Nasdaq: BBRY) are all treading water.
Twitter Inc. (NYSE: TWTR) and Facebook Inc. (Nasdaq: FB) made money, but aren’t setting the world on fire.
However, 2014 is going to be a transformative year for technology, especially on the personal front. Wearable technology is going to be huge.
Google Inc. (Nasdaq: GOOG) is going to introduce its Google Glass eyewear to the masses. Expect the price to be far lower than the $5,000 limited-edition versions that Google introduced a few years ago.
Nike Inc. (NYSE: NKE) has some of the hottest-selling personal fitness devices. Its NikeFuel offerings and FuelBand products are a big hit with fitness buffs.
The rumor is Apple will also come out with a wearable device this year. The company has had no comment, which is typical of Apple.
Wearable devices are already a billion-dollar-per-year industry. By 2018, it’s expected to be in the range of $6 billion to $8 billion annually.
Curved-screen phones and TVs are also on the horizon. While 2014 will see their introductions, it will be a few years before they become common consumer devices.
2014 is the year in which investment in infrastructure projects should really take off. Bond rates are likely to remain low for the foreseeable future.
That makes infrastructure investments attractive and gives investors a huge sandbox to play in.
According to sources, infrastructure spending will be in the range of $57 trillion to $67 trillion between now and 2030. That’s a huge amount of money.
There’s no shortage of projects. The U.S. interstate highway system is in dire need of repairs, upgrades and expansions.
Texas is using its oil taxes to build more highways and bridges than any other state. However, over the next 20 years, it will need $170 billion more than it currently has earmarked to repair them.
California officials estimate 60% of the state's roads and 25% of its bridges are in need of repair or replacement. The projected cost is $70 billion, $52 billion more than is currently earmarked.
America’s highway system was once a symbol of mobility and freedom. Now, it’s physically crumbling and decaying.
There’s a huge opportunity in the infrastructure sector. 2014 will see even more interest in infrastructure projects.
Basic materials are the building blocks of everything we use. A rising global population, the urbanization of Asian countries and economic growth in China and other developed countries have created record demands for metals and minerals.
Iron ore prices reached $154 per ton in February 2013. They then dipped to a low of $114 per ton in June, before recovering to $136 per ton last November.
Chinese infrastructure spending is on the rise. This is a big factor in the increasing demand for iron ore.
Chinese industrial and infrastructure demand for iron and steel has resulted in a paradigm shift in iron ore demand over the last 20 years. China is the largest iron ore consumer, using about 60% of the global market.
China’s continued demand, along with increased demand from South Korea, Japan and India, will keep iron ore prices on the rise.
Another big metal is aluminum. Forecasters expect the demand for aluminum to double by 2025. The main drivers are the automotive and airline industries.
This environment supports high demand and higher prices for aluminum moving forward. China’s continued demand for materials will also help the aluminum sector.
Copper is the third material used in large quantities. 2014 looks bullish for this metal as well.
Right now, there are limited supplies from existing mines. There are a few significant copper mine development projects on the horizon.
Overall, the material sector looks promising for 2014. Analysts predict the materials sector will grow 17.6% overall this year.
As The Oxford Club’s energy expert, I can say we saved the best for last. The outlook for energy in 2014 is superb.
Unconventional shale oil and natural gas have completely changed the energy picture in the United States. The country is no longer dependent on natural gas imports. Within a few years, the United States will no longer depend on OPEC for oil.
New pipelines, plus oil rail trains, are bringing crude oil to the refineries. Demand is now catching up with supply, and domestic oil prices are more than $100 per barrel. They will likely stay there for the rest of the year.
On the natural gas front, a number of trucking companies are switching over to the fuel from diesel, and major interstate truck stops are adding natural-gas refueling infrastructure.
Natural gas is also the go-to fuel for utilities building new power plants. Panda Power Funds is a great example. This private equity fund builds natural gas-fueled power plants.
It uses gas turbines supplied by Siemens AG (OTC: SIEGY). Right now, Panda is building two power plants in Pennsylvania and three in Texas.
Panda is a great example of an exciting new direction in the power energy market. In the United States and elsewhere, natural gas-powered generation plants are finding easy access to capital.
The reason is they are cheap to build, and can be completed quickly. New natural gas-fired power plants are now among the cleanest in the United States.
There’s no mistaking the United States' shift away from coal and toward natural gas as an energy source. Tough new EPA regulations make new coal plants a pipe dream.
The energy field will create more jobs in 2014 than will any other sector. The investment opportunities are fantastic.
How to Play the “TIME” Sectors
An investor could certainly build a portfolio of individual equities for each of the four sectors mentioned above. For those who have neither the time nor the inclination to do so, there is a simpler way.
Select Sector SPDR exchange-traded funds (ETFs) divide the S&P 500 into nine different index funds. Conveniently, they have one for each of the four sectors above.
The Technology Select Sector SPDR ETF (NYSE: XLK) contains shares of Internet software and service companies. In addition, the fund includes semiconductor equipment and products, diversified telecommunication services, computers and peripherals and wireless telecommunication.
The Industrial Select Sector SPDR ETF (NYSE: XLI) includes building products, electrical equipment, construction and engineering, aerospace and defense, machinery, air freight and logistics, marine, road, rail and airline companies.
The Materials Select Sector SPDR ETF (NYSE: XLB) has companies involved in construction materials, chemicals, metals and mining, containers and packaging, and paper and forest products.
The Energy Select Sector SPDR ETF (NYSE: XLE) contains energy companies that develop and produce natural gas and crude oil. In addition, the fund contains drilling and other energy-related service companies.
The beauty of the Select Sector SPDR ETFs is they’re broad-based ETFs. This allows investors who purchase shares to gain much wider coverage of any given sector. For instance, the Technology ETF contains shares of 71 companies. My favorite, of course, is the Energy ETF, containing 46 companies.
These ETFs are a great way to invest in what I believe will be the four top sectors of 2014.