A Dystopian Future for Investors

I'm a big fan of dystopian works like George Orwell's 1984, Yevgeny Zamyatin's We, Ray Bradbury's Fahrenheit 451, and Aldous Huxley's Brave New World. Of course, when you start to think too much about bleak futures, you begin to wonder what type of companies would really do well in these (hopefully!) fictional worlds. This can be a conservative way to choose companies for your portfolio, and if the company still looks to excel under those types of stressful situations, then perhaps you might have a winning investment. This process is similar to what our Income Investor team does when they put together their recommendations for subscribers.

With that in mind, I turned to our Motley Fool CAPS database, which is our new community intelligence tool where regular and professional investors alike rate stocks either an "outperform" or an "underperform." Based on those calls, each investor is then ranked compared to other players (more than 13,000 and growing daily). Based on that research, I found some companies that might do well in some of the scariest futures we've imagined to date. Keep in mind that these stocks are not formal recommendations, as much as starting points for further due diligence. And yes, I'd be the first to admit that some of these scenarios are unlikely. Thankfully!

Company

CAPS
Investors Covering

Bulls/Bears Ratio

Cray Computers

27

16 to 11

Genentech (NYSE: DNA  )

390

358 to 32

iRobot
(Nasdaq: IRBT  )

465

423 to 42

United Fire & Casualty
(Nasdaq: UFCS  )

124

116 to 8

Ceradyne (Nasdaq: CRDN  )

294

287 to 7



What is my rationale behind these choices? Cray Computers has to be an automatic fixture because of the potential for computers to exceed human brain power by 2020 (per acclaimed futurist Ray Kurzweil). The computer industry will certainly play a big part in our future, even if it's darker than we may have imagined.

Genentech makes the list because of the importance of biotechnology over the coming decades. We will be learning the human body's deepest secrets, though some of this information could be troubling and lead to ethical dilemmas we may have difficulty resolving.

United Fire & Casualty was picked because even in the darkest of futures, like an earthquake measuring 8.0 on the Richter scale hitting Los Angeles, fire insurance will still be needed. And underwriters will be sure to raise their premiums to reflect the increasing risk of natural disasters if this is in fact part of our future.

Ceradyne was included due to the potential for military quagmires that could paralyze the nation and cause class warfare. iRobot made the list because robotic technology is likely to be ubiquitous in the future -- haven't you seen the movies?

Investors would do well to think about several things when considering investments for their portfolios. Being deeply, inconsolably negative about the future doesn't necessarily have to mean having a portfolio all in cash, or treasury bills. Like I've shown above, there can be potentially great investments, even if the future might be going to heck in a handbasket.

Also, investors often fail to consider anything but the rosiest futures to justify the stock's valuation, which opens the investor up to massive losses. The dystopian investor can avoid all of this heartache by beginning with the worst possible scenarios, and thinking about what type of companies could profit from them. Sure, that can be macabre, but often the best investments are found by investors who are willing to think outside of the box. After all, which was the correct decision in the late 70s and early 80s: invest in mainframes or PCs? You'd better believe that IBM (NYSE: IBM  ) was envisioning an entirely different future than Apple. A dystopian investor thinking about the worst for IBM might have done very well investing in Apple.

Of course, there is the old stand-by for those who really do believe that tough times lay ahead: gold. While this investment has done exceedingly well over the past few years, it is difficult to determine if the strong run-up will continue. Since gold's price has no intrinsic value, it is driven primarily by supply and demand, as well as other macroeconomic and currency-based indicators. While gold isn't my cup of tea, it could very well be the perfect choice for a dystopian investor.

United Fire & Casualty is a Hidden Gems pick. iRobot is a Rule Breakers selection. To take a 30-day trial of any of our newsletters,click here.

Fool contributor Stephen Ellis does not own shares in any companies mentioned. You canview the stocks he owns and check out his99th-percentile ranking in Motley FoolCAPS, the Fool's new stock-rating community. The Motley Fool has adisclosure policy.


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