Hat’s off to the Bull
The Dow Jones Industrial Average finished the week at an all-time high, eclipsing its previous peak from 2007. Economic data continues to show some improvement, and with stocks under-owned, investors have been increasing their allocation to equities (as highlighted by a recent Barron’s cover story). While the broader S&P 500 is just shy of its previous record set in October of 2007, we still believe there is upside for stocks. The U.S. consumer has shrugged off the tax increase and the sequester drama and beginning to borrow again, and corporate America is maintaining high profitability. Furthermore, Emerging Markets, specifically China, are reaccelerating and Europe is attempting to build a base. With this in mind, we will continue to ride the Bull for the foreseeable future.
While U.S. stocks are either reaching, or on the verge of reaching new highs, this is not the case for those across both oceans. The MSCI EAFE index is still 30 percent off of its 2007 highs, and Emerging Markets are 25 percent below their previous peak. With this in view, we believe there are opportunities to expand international exposure in client portfolios through reductions in allocations to fixed income securities and gold.
Down on the Farm
Ferguson Wellman’s industrials sector analyst, Jim Rudd recently attended a conference highlighting companies in the agriculture space. As global incomes rise, people are able to consume more protein, and as a result, demand for corn and soy will remain high. However, global farmable acres are not growing, thus improving yield is key to meeting this heightened demand. Fertilizers, herbicides, and seed manufacturers are all themes we are employing to take advantage of this secular shift.
As demand for agriculture products rise globally, we are going to see prices increase in both crops, as well as other food products (namely beef). With corn as the main feedstock, ranchers will demand higher beef prices. We will be watching this dynamic closely in 2013 as food prices may put some pressure on the consumer, as well as hit margins for restaurant operators.
Smart phone proliferation and the growth of wireless data were highlighted at the Mobile World Congress in Barcelona this week. Growth of devices like Apple’s iPhone and Samsung’s Galaxy phones continue at a pace approaching 50 percent, with over 1 billion units shipped in 2013. In fact, penetration of smartphones will eclipse 50 percent globally this year. Wireless providers such as Verizon Wireless and AT&T are spending billions to continue to upgrade their networks to handle the increased data demands that this shift has caused. Spending on 4G/LTE networks will be peak this year in the United States. 4G/LTE networks give handset users the ability to download a 20 Megabit file in 25 seconds (compared to three minutes on a 3G network). The increased amounts of data traveling across networks will grow the need for more storage and cloud capacity, as well as mobile security. As such, storage and security are two themes that we are focusing on in our client portfolios.
We believe Apple and Samsung will continue to be market leaders in the Smartphone market with a combined market share of close to 60 percent, while earning over 100 percent of the profits. The ecosystem that the Apple iOS and Android enjoy over other vendors should allow them to maintain this quasi-duopoly for the foreseeable future.
Our Takeaways from the Week
- Even though US equities are close to all-time highs, we still believe there is more upside
- Mobile data growth will be a long-term secular theme in Technology