New Year’s Day has come and gone, but for some partiers the celebrations are still going strong. Between an impressive stock surge, rising corporate spending and a jump in the manufacturing indices, investors seem determined to prolong the celebrations for as long as possible. Or at least until stock portfolio strategies are finalized.
Recent market history might still endorse a prudent approach to balanced portfolio risk, but 2011 looks to be the year for wild-card investments. Should investors play it safe with popular sector funds or daringly shun herd mentality in favor of the unconventional?
In almost every case, your best investments will come from picking the right industries, not the right companies. After all, a lagging company in an explosive industry is bound to fare better than the best company in a lousy industry. Only after you've identified the most powerful industry trends should you start looking for the best companies within that industry.
[Walk through a tutorial on conducting your own industry and company analysis by reading "SWOT Analysis: A Practical Guide to Analyzing Companies.]
Trend #1: The Changing Face of Warfare
Mention Iraq or Afghanistan and the first thing coming to mind are IEDs (Improvised Explosive Devices). Constructed from either jury-rigged military ordnance or fertilizer and typically detonated by tripwires, pressure plates or remote-command, these weapons have wreaked considerable havoc on U.S. and coalition forces. The solution to this insidious problem is an innovative line of bomb-disposal robots courtesy of iRobot (Nasdaq: IRBT).
Once seen as nothing more than a land mine clean-up tool, these units have become the weapon of choice against IEDs. Able to navigate stairs, rubble and even narrow passageways, these 21st-century warriors are so popular the company can barely keep the base model 510 Packbot in stock.
Chart 1. iRobot Five-Year Stock Price
Yet, iRobot also offers relief for those with little time to vacuum and mop up on the home front.
The Roomba is a programmable robotic vacuum that easily maneuvers around and under all sorts of household furniture. Not to be outdone, the newest Scooba robotic floor mop will scrub up to 150 square feet of floor space in a single cleaning—an area typically covered with spills from toddler-flung sippy cups.
Investors seeking more Star Trek zip in their wild-card investments would do well to check out Raytheon (NYSE: RTN). Why? Two words: Laser weapons.
Last summer, the U.S. Navy successfully shot down four unmanned drones over the Pacific with Raytheon’s laser-enhanced Phalanx Close-In Weapon System, a rapid-fire, computer-controlled, radar-guided gun system. Once belonging solely to the realm of science-fiction writers, laser weapons are very real and offer a multitude of benefits ranging from limitless ammunition, little to no recoil, greater operational range and an evasive impossibility. They could soon become a soldier’s Little Black Dress of choice (second to the iRobot bomb-disposal units).
Chart 2. Raytheon Five-Year Stock Price
Trend #2: Smarter Workouts for a Growing Fitness Market
No pain, no gain. Stretch until it hurts. Break right through that wall.
With exercise slogans like these, is it any wonder people despise the gym? Luckily, Reebok agrees. The brand, acquired by Adidas (PINK: ADDYY) in 2006, now offers serious athletes the opportunity to ditch worn-out workout maxims in favor of something much more useful—smarter clothes.
Designed to measure heart rate, number of strides, calories burned and average metabolic rates, Reebok is teaming with startup company MC10 to develop a flexible, technology clothing line. Thin enough to be woven directly into the clothing, yet technologically advanced enough to measure sweat pH levels, heart rate or blood pressure, these wearable, wireless electronics can transmit athletic workout stats directly to a trainer’s laptop.
It’s almost enough to make exercise fun again.
Chart 3. Adidas Five-Year Stock Price
Trend #3: The Repair of Dilapidated Infrastructure
Every day, American commuters drive over thousands of aging and structurally compromised bridges without ever realizing it. At least not until tragedy strikes.
In 2007, the 30-year-old 35W Bridge in Minneapolis suddenly collapsed, flinging cars and people into the river below. They were the lucky ones. Broken shards of pavement, twisted cables and burning tractor trailers trapped the less fortunate. Soon afterward, the 2009 Report Card for America’s Infrastructure revealed that over 26% (or one in four) of U.S. bridges are either structurally deficient or functionally obsolete.
Government reluctance to invest in infrastructure and rising repair costs helped spur newly public Memsic (Nasdaq: MEMS) into developing the Imote2 Structural Health Monitoring Board (ISM400). Attaching wireless smart sensor networks to the bridge deck, cables and pylons, the Imote2 system calculates tilt, shock, vibration and damage detection algorithms which are then fed back for review at the local base station. Timely analysis means minor ruptures and cracks can be quickly repaired before another deadly accident hits.
Chart 4. Memsic Five-Year Stock Price
Trend #4: Securing Sensitive Data
Thanks to the WikiLeaks scandals, corporate file data security is hot, hot, hot.
A December study by advisory firm People Security only fueled this fire after discovering that two-thirds of company employees regularly revealed sensitive data outside the workplace (think Starbucks, Wi-Fi-equipped buses and airport terminals). Additionally, the report stated that 71% of the working professionals surveyed admitted to glancing at a stranger’s computer screen. 15% deliberately peeked, while 2% openly admitted to attempted information theft.
While it’s impossible to completely prevent information leaks, there are ways to reduce the chances of it happening. The simplest is also the cheapest: 3M’s (NYSE: MMM) privacy filters. Available for laptops, netbooks, desktops, mobile phones and even iPads, these once-boring privacy filters are proving that an ounce of prevention is well worth a pound of cure.
Chart 5. 3M Five-Year Stock Price
Of course, serious security takes more than just an artfully placed privacy screen, and that’s where FLIR Systems (Nasdaq: FLIR) comes into the picture. With a mind-boggling array of thermal imaging and infrared security products, the company offers security options ranging from cameras able to detect and track a would-be thief to thermal weapon-sighting gear for those companies (or a nation’s State Department) serious about protecting its extra-sensitive documents.
Chart 6. FLIR Systems Five-Year Stock Price
A company's profitability and stock price are both governed by the competitive framework of its industry. By projecting trends and shifts in the global economy, investors can put themselves in a position to take advantage of long-term profit opportunities.