Three Big, Profit-Driving Trends I’m Watching for 2018
I made my case forcefully in last year’s Forecast issue that 2017 would be…
1) A year of extraordinary profits despite overwhelming cynicism associated with one of the most contentious elections in U.S. history;
2) And that there would be far higher prices ahead, especially for three sectors: big technology, defense, and key medical providers.
I urged you to “get on board or get left behind” and suggested you prioritize “Global Challengers” for income and appreciation as a way to maximize profits.
Many of our recommendations took off like a rocket, some of which hit at least 100% and turned into free trades during the past 12 months. The S&P 500, by comparison, turned in only 18.66% over the same time frame.
A good number of our options plays, which I recommend as a more aggressive way to follow along with our recommendations, have done even better.
I see 2018 playing out much the same way: full of tremendous opportunities and life-changing wealth.
I think investors who keep these things in mind stand to make superior returns over the next 12 months and beyond…
Trend No. 1: Don’t Be Shaken by Short-Term Volatility
There is no question the bull market is maturing, but “de-risking” – a Wall Street term meaning taking money off the table – would be premature.
I expect volatility to rise in 2018, but that’s a short-term influence to be overcome with prudent stock selection and diligent risk management. It’s not an excuse to run for the hills, which is how most investors will perceive a long-overdue pullback when it arrives.
Tactically speaking, the smart money – including us – will continue to prefer big, liquid stocks aligned with the Unstoppable Trends we follow. That’s especially true when it comes to companies making “must-have” products and services the world cannot live without. They are, at once, huge profit plays – but very defensive, too.
At the same time, this will dramatically reduce the nature and frequency of traditional pullbacks most investors look for but never find.
I see the probability of a pullback highest in Q1 2018.
Wall Streeters are looking to the U.S. Federal Reserve for guidance, but I continue to believe that’s fruitless. Team Yellen continues to struggle with models that don’t reflect today’s financial reality.
Technology, in particular, continues to be a deflationary input that confounds the Fed.
This creates three key capital flows.
1) First, earnings will continue to accelerate, especially where stimulative spending and efficient taxation are concerned. This speaks to critical defense stocks, infrastructure plays, and medicine – all of which have large international operations and will benefit.
2) Second, the Fed will fail to rein in credit even as it mistakenly focuses on liquidity. As long as that’s expanding, credit card companies and luxury goods items will perform well, so we’ll be pursuing opportunities here for the first time in years.
3) And third, equity market dispersion will create sustained demand for high-yield assets. The best choices will be companies growing into earnings, and valuations most investors believe are expensive, but which really aren’t.
“Dispersion” means the gap between the price of the top 25% and the bottom 75% of equities, and implies that the markets are expensive only for those companies where there is limited or slowing earnings growth.
I don’t see much change politically speaking, and that’s an important emotional input we can play for big profits. Drumpf’s MAGA policy implies renegotiation of NAFTA and bilateral agreements. This will create a policy cascade (and headlines) that drive short-term market direction but do not derail longer-term profits, nor the CEOs charged with producing them.
Trend No. 2: Global Realignment Continues
China and Russia are drawing increasingly close, which gives investors a chance to broaden their investing horizon. This will be the year that China finally transitions to the global power it aspires to be based on global growth, earnings improvement, and business reform.
We will be returning to both China and Russia in 2018 with key opportunities that are likely to grow three to five times faster than comparable U.S. choices. There will be 222 Chinese companies added to the MSCI EAFE Index in May, and that’s going to unleash an estimated $500 to $700 billion in capital instantly when the world’s major indexes have to rebalance – so we’ll be getting ahead of that, too.
I cannot understate the importance of this for the simple reason that China will account for 35% of global growth starting in 2018 – that’s double the United States, which comes in second, at only 18%.
Unbeknownst to most investors who still favor traditional allocation models, global integration is a major driver because it enables the transition from “old-world economics” to dynamic “new-world economics” and correspondingly huge profits. Like most investors, you can fight this emotionally all you want, but I’d rather see you get on board with the world’s best companies and the truly unprecedented profit potential they ensure.
Trend No. 3: Prices Are High… but Not Yet Irrational
Current prices appear expensive, but only in historic terms and only for companies without pricing power. In fact, when you judge them against the high level of corporate profitability, they’re reasonable. This seems inherently irrational for fundamental investors (and vice versa).
If the current bull market tracks 1990’s or even 2007’s peak, that puts the S&P 500 at 5,300 by 2020, according to Goldman Sachs, and roughly 5,100 by my calculations. Either way, the path of least resistance and huge profits is higher, not lower, as many investors mistakenly believe.
Here’s the Bottom Line
I view 2018 very much as I did 2017 – as a year that will be filled with profitable investment opportunities, especially when it comes to three of our Six Unstoppable Trends: medicine, technology, and war, terrorism & ugliness stemming from an (unfortunately) very ugly geopolitical situation.
Contrary to what many analysts believe about them being threats, all three are drivers when it comes to the pace of investment, higher productivity, and reinforcing profits that drive stock prices higher – starting with this month’s primary recommendation on page five… a company that could almost single-handedly add $50 trillion to global output.
I also see a fresh crop of income investments coming of age this year, including companies that have already better than doubled our money, like ABB Ltd (NYSE: ABB); companies not typically thought of as income plays, but which are returning capital to investors. Rates will remain lower than the Fed would like for reasons they themselves still cannot grasp.
Once again, it will be “better to be long than wrong” in 2018!
There’s a big year of potential ahead of us. That makes now the perfect time to learn how to get access to Keith’s Money Map Report investment research and recommendations, including all the stocks he expects might double in 2018. Just click right here. Money Morning Members can take advantage of a special $5 introductory price. Have a look…