With the market rising and falling on big economic news, company- and country-specific changes have gone unnoticed. Catch those now, and make money later, writes MoneyShow's Jim Jubak, also of Jubak's Picks.
Meanwhile, in the rest of the world...
For what seems a lifetime—actually, only since we started dealing with the European debt crisis, the slowdown in Chinese economic growth, and the Federal Reserve-led wave of global central bank intervention—price trends in global financial markets have been driven by macroeconomic trends.
That action has been dominated by swings between fear—that, for example, the US economy is about to slip back into recession—and hope—that, for example, China's new leaders will launch a big, high-profile economic stimulus package to fend off a hard economic landing.
Although it's been hard for individual stocks, industries, sectors, or countries to buck the macro trends and the big swings they've produced, that doesn't mean nothing has been happening at those levels. Big changes have been going on off the radar while traders and investors have been obsessed with the "will we/won't we" questions of going over the fiscal cliff, breaking up the Eurozone, or sinking below 7% growth in China.
Maybe the best way to think about it is this: While current prices are being driven by macro events, the power of fundamental changes at the individual company, industry, sector, or country level to drive prices up or down is simply being stored. When the market is ready to pay attention to these types of fundamentals again, that power will kick in.
That means, I think, that if you can divert some of your attention from the big macro trends and figure out what changes are taking place at other levels, you've got a chance to pick up part of that stored-up power and stash it in your portfolio. When the day comes that prices move on these company- and country-specific changes, your portfolio will move, too.
Gearing Up for the Grand Switch
Some very disciplined long-term investors are at work doing that now. Warren Buffett, for example, has been buying shares of DaVita HealthCare Partners (DVA), a provider of kidney dialysis services.
In late October Buffett's Berkshire Hathaway (BRK.B) bought 63,928 shares of DaVita at somewhere in the vicinity of $110 a share. That was Buffett's fourth buy of DaVita shares in less than a month, and brought his holdings to nearly 10.55 million shares.
For Buffett, the domestic and global growth in the number of diabetes patients requiring dialysis services at one of DaVita's clinics is a long-term fundamental story that will get eventually drive the stock price higher—no matter what macro trends do to the overall financial markets.
Not that Buffett has done too badly with DaVita: The shares are up 40% in the past year. (For more on the global plague of diabetes, and on diabetes stocks such as Novo Nordisk (NVO), see "Excitement in Drug Stocks? Yes" at JubakPicks.com.)
OK, let's say you have the patience, discipline, and foresight of a Buffett (and don't we all?). What other trends are developing beneath the radar in this macro-dominated market?
|pagebreak|5 Trends to Watch
Some of these are barely off the radar; you may be aware of them but hesitant to commit cash while the market is so volatile. Some are much more obscure, and you may not be following them at all.
- Continued capital-spending cuts in the mining sector say it's still too early for Joy Global (JOY), Caterpillar (CAT), and other equipment makers.
Brazil's Vale (VALE), for example, is expected to announce a reduction in capital spending to $15.3 billion in 2013. In September, projections put the 2013 budget at $16.8 billion. Either figure would be a big cut from the $21.4 billion budgeted for 2012.
And Vale isn't alone. Last week, Rio Tinto (RIO) said it would cut spending on exploration by $1 billion in the remainder of 2012 and in 2013. The company would also look to reduce operating and support costs by $5 billion by the end of 2014. I think this argues that any optimism about a turnaround in mining-equipment sales in the first half of 2013 is jumping the gun.
- The mining story for the next year is country- and commodity-specific.
Mining companies in Australia, for example, have been hammered by soaring costs. In announcing its budget and operating cuts, Rio Tinto noted that support costs in Australia have become the highest in the world. Five years ago, they were among the lowest.
The coal sector is Australia has been hit especially hard by rising costs. That's put pressure on BHP Billiton (BHP) and Peabody Energy (BTU), which had aggressively expanded its presence in Australia.
On the other side of the ledger, copper miners, faced with a shortage of supply to meet existing demand—in the first half of 2012, anyway, and quite possibly longer—continue to press ahead with expansion projects and acquisitions.
The indicator deal here is First Quantum Minerals' (FQVLF) $4.9 billion (rejected) bid for Inmet (IEMMF), the owner of the undeveloped Cobre Panama copper resource, projected as the second-largest undeveloped copper resource in the world.
- And speaking of Panama, the country has been the fastest-growing Latin American economy in 2012...as it was in 2011. But it is by no means the only growth story in the region.
Add in Colombia—growth of 5.9% in 2011, and projected growth of 3% to 5% in 2012 and 2% to 5% in 2013—and Mexico—4% in 2012, with plans by incoming President Enrique Peña Nieto to push growth to 6% by the time his six-year term is over—and Latin America has some of the world's best growth prospects. (Panama has averaged 9% annual growth over the past six years.)
Most interesting to me at this point is Mexico. The recent success there is a huge change from the past decade, when growth averaged just 1.6% a year through 2010, and the improvement looks sustainable.
Mexico, which lost export business to China, has started to gain it back as China's wages climb and as the lower cost of exporting to the United States becomes a significant advantage. On the current trend, Mexico has a shot at becoming one of the ten largest economies in the world by 2020.
One key to watch is Peña Nieto's success or failure in changing the basic law governing Mexico's state-owned oil company Pemex so that the country's oil industry can attract the capital and expertise it needs to reverse the dramatic decline in production.
|pagebreak|Mexican companies to take a look at include global cement giant Cemex (CX), homebuilders such as Desarrolladora Homex (HXM), food producers such as poultry producer Industrias Bachoco (IBA), and media company Grupo Televisa (TV).
- The other Latin American story that interests me now is the rise of banks in the region that have picked up share.
The big Spanish banks that dominated the continent of late, Banco Santander (SAN) and Banco Bilbao Vizcaya (BBVA), have had to pull back or sell off businesses to raise capital to help them recover from the bust in Spanish real estate and the decline of the Spanish economy.
Two local banks to look at are Chile's CorpBanca (BCA), which has made two major acquisitions in Colombia this year (including the purchase of Banco Santander's Colombian unit) and Colombia's Banco Davivienda (PFDAVVND in Bogotá), which has recently expanded into Panama with plans for an expanded role in the United States.
- The other big regional growth story is taking place in Africa, specifically sub-Saharan Africa.
Gross domestic product for Africa as a whole will grow by 5% in 2012, the International Monetary Fund projects, with 5.7% growth a reasonable target for 2013.
But that growth won't follow the usual pattern, with South Africa leading the way and countries such as Nigeria squandering their promise. Currently it's South Africa, mired in labor unrest, corruption, and dysfunctional politics, trailing countries such as Nigeria and Kenya.
Africa remains a tough nut to crack for investors, with relatively little information available on the relatively few publicly listed companies. Two that I've been researching lately are Nigeria's IHS (IHS in Lagos), an owner and operator of cell-phone towers in Africa, and Naspers (NPSNY) a South African media company with 6 million pay-TV subscribers in South Africa and 1.8 million in the rest of Africa.
These five stories certainly don't exhaust the world of company, sector, industry, and country-specific trends that are unfolding while the market devotes the bulk of its attention to macro trends in Brussels, Washington, and Beijing. For example, there's the move by Norway's $660 billion sovereign wealth fund to increase its allocation to real estate, including the US real-estate market, to 5% of its portfolio from 0.3% at the end of September.
But these five trends should be enough to get you going. Someday this macro-dominated financial environment will end—if only for a while—and your portfolio will be grateful that you managed to devote a little of your attention to long-range, below-the-radar thinking.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of Banco Bilbao Vizcaya, Banco Davivienda, Banco Santander, CorpBanca, Grupo Televisa, Industrias Bachoco, and Novo Nordisk as of the end of September. For a full list of the stocks in the fund as of the end of September, see the fund’s portfolio here.
