Picking individual stocks is never easy. But your odds of making money rise if you select stocks that will benefit from big-picture investment themes. Here are five big ideas for 2014, according to the five top investment managers and strategists of USA TODAY's Investment Roundtable:
Hospitals are healthy investments
Sure, the rollout of the Affordable Care Act has been dreadful, but that doesn't mean hospitals won't benefit big with the implementation of Obamacare, says Larry Robbins of Glenview Capital Management. The bottom line is that many of the 60 million Americans who don't currently have health insurance will get it beginning Jan. 1, and during the next few years as the law mandates it. The math is healthy for hospitals: currently, hospitals "collect four cents on the dollar" on their costs from uninsured patients who go to an emergency room for care but don't have the ability to pay. Under the new law, once those folks are insured, the hospitals will "collect closer to 100 cents on the dollar." In addition, with more insured patients comes greater access to the health care system, which means hospitals will earn more money doing procedures such as hip-replacement surgery, he says. "The trend towards universal coverage is irrevocable," says Robbins.
Go global
Most Americans have become U.S.-centric in their investment portfolios. As a result, "they are underinvested in foreign equity markets," such as Europe, Japan and emerging markets, says Russ Koesterich of BlackRock. Economies outside the U.S. are also on the mend and will benefit from a continuation of stimulus policies from central bankers and policymakers in Europe and Japan. With U.S. stocks now fairly valued relative to history after the big run-up this year, 2014 may be a good time to take advantage of opportunities outside the U.S., he says. Foreign markets also offer better relative value, he adds. European shares, for example, are trading at a 40% discount to U.S. stocks on a price-to-book basis, Koesterich says. From a P-E standpoint, Europe is trading at 13.2 times expected earnings in the next four quarters, below the 15.1 P-E multiple of U.S. shares, according to Thomson Reuters.
Wearable tech
Social-media stocks, in many ways, are so 2013. If you're looking for the next hot thing in tech-land, so-called "wearable" tech might fit the bill, says Kevin Landis of Firsthand Technology Value Fund. There are tech gadgets that are now being worn on wrists and around the eyes (think science-fiction-like glasses that act like computers) that both gather information about you, such as how many steps you've taken today, and display information for you, such as directions, says Landis. "This trend is right on the cusp," he says, adding that most wearable products are still in their infancy, and more and better apps are on the way. Products such as Google Glass are just the beginning. "There are a lot of companies now focusing on what they can put right in front of your eyeballs," says Landis, "so that when you walk down the street, you don't have to look down at your smartphone to see something; it is right there in your field of vision."
Buy GDP-sensitive stocks
The U.S. economy is getting stronger. GDP growth is likely to pick up steam in 2014 and climb above 3% by year-end. That means economically sensitive stocks, or companies that fare the best when business picks up, are good candidates for strong performance, says Savita Subramanian of BofA Merrill Lynch. "Over the last several years, investors have shunned cyclical stocks and paid increasing premiums for secular growth stocks, such as biotech and Internet names," she says. "We believe stocks that are most tethered to cyclical growth should outperform as U.S. GDP growth picks up in 2014." The sectors with the highest sensitivity to GDP growth? Industrials, tech and energy, she says.
Don't go into a defensive shell
Investors have played it safe in recent years. Those who have ventured back into the stock market have flocked to more defensive stocks, such as dividend-payers, utilities and real estate investment trusts. The problem, says Nick Thakore of Putnam Voyager Fund, is that those so-called safe areas of the market have gotten pricey from a valuation standpoint, especially relative to cyclical stocks that benefit from an improving economy. "If the world is a little more stable and interest rates (go) back up, the valuation extreme should reverse," Thakore says, adding that spending on big-ticket items, such as homes, autos and boats, is well below historic trends. "If the world turns out to be OK, there are a lot of companies that will benefit from a stronger economy."
