Wall Street is always making predictions. And those predictions often reveal beyond a shadow of a doubt how much they don’t know.
Of course, no one can predict the future. Too much depends on events that are completely unknowable. We can guess. But that’s all. To be fair, Wall Street prognosticators have no choice but to put their lack of knowledge of the future on display because their marketing departments demand it. Then we have to listen to it, every year.
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The most common forecast for the S&P 500 among Wall Street banks in any given year is that it will rise between 5% and 10%. It sounds good. Sure, the stock market will still go up but not that much. It’s a hedge. And in the 93 years since 1928 the S&P has only risen between 5% and 10% in a given year six times!
When looking ahead to the coming year and the coming decade, instead of pretending I have predictive powers that I do not, I’d rather be honest about what I know and don’t know. For example, I have no idea what the weather will be in 10 days. It might snow again and winter could drag on, or it could be 65 degrees like it was the other day, and start to feel like spring. I have no idea. But I do know that the weather will trend warmer as we move toward spring and summer.
In a similar vein, I don’t know what will be driving the market up or down in six months. Even if I make an educated guess, an unforeseen event could swoop in and change everything (anyone see this Russia/Ukraine thing coming six months ago?). But I am confident that certain pronounced trends will still be in place for the rest of the year and decade. For example, I know the population will still be getting older.
A megatrend is defined as a set of changes in the world that are enormous in their impact, unprecedented in their magnitude, and apparently unstoppable in their march. These are pronounced directional changes that are sure to continue.
Investing in front of these megatrends can greatly enhance your chance of success. Here are two megatrends that are sure to persist in the year and decade ahead—and two stocks that will likely benefit.
Megatrend #1: The Aging of the Population
Stock: AbbVie Inc (ABBV)
Because of lower fertility rates and longer life spans, the U.S. and world population is older now than ever before in human history, and getting still older at warp speed. The fastest growing segment of the U.S. population is 65 and older as an average of 10,000 baby boomers turn 65 every single day. And the trend is even more pronounced in many other parts of the world. It is nothing less than a transformation of the demographic properties of the human race.
An older population will change many things. One is demand for healthcare. It is a sure bet that as people get older they will demand more and better healthcare.
U.S.-based biopharmaceutical giant AbbVie is a cutting edge company specializing in small molecule drugs. After being spun off from parent company Abbott Laboratories (ABT) in 2013, it has grown into the eighth largest pharmaceutical company in the world, primarily on the strength of its blockbuster biologic auto immune drug Humira, which is the world’s number one drug by far with annual sales of about $20 billion.
While the stock has been a stellar performer since inception, it ran into trouble in 2018 and much of 2019. Humira, which accounts for about 60% of revenue, is facing biosimilar competition overseas and will also face competition in the U.S. (which accounts for two-thirds of sales) in 2023. For a time, the market was concerned that AbbVie will not be able to compensate for the falling revenues, but today, it’s not, with shares rising to new all-time highs around 150 as of this writing.
Perhaps what investors are seeing is that AbbVie has one of the very best array of newly launched and pipeline drugs in the business. Over time, revenues from the new drugs should easily compensate for the slippage in Humira sales. As well, the company is still realizing the benefits of its merger with Irish pharmaceutical company Allergan (AGN), completed in May 2020, which is helping it further diversify the company from Humira.
Despite reaching new highs, ABBV is still a great value and an opportunity to get into one of the very best healthcare companies in front of a megatrend. It also pays a 3.8% yield while you wait.
Megatrend #2: The Growing Global Middle Class
Stock: Coca-Cola (KO)
Since the end of the Cold War, billions of people have been lifted from poverty and the global middle class is growing at warp speed. The amount of middle class citizens around the globe is projected to increase by billions over the next decade. The Brookings Institute estimates that the majority of the world’s population is now (or will soon be) middle class for the first time ever. It is estimated that globally the middle class will spend an additional $30 trillion per year by 2030.
That’s a huge market. Companies positioned to benefit from the vastly growing amount of global consumers are likely to benefit in the years ahead. A company that can sell affordable products to emerging markets, particularly in Asia, is right in the wheelhouse.
The CEO of Coca-Cola said a few years back that new markets the size of the population of Manhattan (about eight million) open up for the company’s products every single year. Coke is one of the world’s most iconic brands. It already has a huge presence in emerging markets and there is no other company with deeper pockets or more expertise to take advantage.
This is by far the largest non-alcoholic beverage company in the world. In addition to the soda it also has popular brands like Minute Maid, Dasani Water, Powerade and Georgia Coffee. It grew to where it is by being a brilliant marketer and a fierce competitor in the toughest market in the world. In emerging markets it’s like a wolf among sheep. Its products are exactly what people first start buying when they get a disposable income.
This blue-chip stalwart sports a 2.8% dividend yield and is a Dividend Aristocrat that has raised the payout every year for the last 58 years. It has also grown the dividend by an average of about 7% per year over the last 10 years. When you take a company like Coca-Cola and add millions of people to its market every year you get one of the world’s most solid growth operations as well.
Are there any other global megatrends you have your eye on?
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*This post has been updated from an original version, published in 2020.
