The World Is Changing: Shouldn't Your Portfolio?

Silently, the world achieved a milestone. For the first time ever, more than half of the human population now lives in cities. The trend of urbanization is officially unfolding. In developing countries, this is fueling demand for the building blocks of modern society. In developed countries, it's forcing more economical uses of space and energy efficiency. It's time to make sure your portfolio is poised to profit from these trends.

A real squeeze
According to Johns Hopkins Bloomberg School of Public Health, roughly 30% of the world's population lived in cities in 1950. By 2030, this figure is expected to jump to about 60%.

If developing countries continue their current population growth rate going forward, urban population will double in 29 years. And according to UNFPA, by 2030, cities and towns of the developing world will make up 80% of urban humanity.

This trend in global urbanization presents challenges and opportunities. According to the IEA World Energy Outlook 2007, China and India could account for 45% of the increase in global energy demand by 2030, with both countries more than doubling their energy use during that period. One only had to switch on the news a couple of weeks ago to be reminded of the importance of this. India's recent multi-day power shortage effectively crippled a half a billion people -- over 7% of the world's residents -- due to inadequate infrastructure.

Here's what will be needed as a result of the trend toward global urbanization:

  • Natural resources -- Metals and materials
  • Infrastructure -- Earthmoving equipment, roads, factories, and buildings
  • Energy -- Power generation and distribution
  • Sanitation services -- Sewage systems and water service
  • Food supply -- Agricultural equipment and related products

Let's take a closer look at five companies prepared to benefit from the trend of urban globalization.

Company

Business Strengths

Forward P/E Ratio

BHP Billiton (NYSE: BBL  ) World's largest mining company. Producer of more than a dozen commodities. Diversification allows company to navigate volatile commodity pricing better than peers. 8
Emerson Electric (NYSE: EMR  ) Products -- such as compressors, HVAC systems, and automation software -- are key components in building and maintaining manufacturing plants, data centers, and office buildings. 13
Waste Management (NYSE: WM  ) Not only disposes of trash, but generates energy from it. Barriers to entry and extensive permitting requirements prevent others from polluting market share. Currently operates only in North America. 15
Deere (NYSE: DE  ) World's leading manufacturer of agricultural equipment helps farmers increase productivity and efficiencies. Major producer of construction, earthmoving, and forestry equipment. 9
Caterpillar (NYSE: CAT  ) Leading manufacturer of construction equipment and mining machinery. Produces turbines and engines for power generation. 8

Sources: Yahoo! Finance, Companies' 2011 Annual Reports.

While these companies each possess exciting growth prospects, they've not performed too shabbily in recent years. Take a look at how they've fared during the past decade.

BBL Total Return Price Chart

BBL Total Return Price data by YCharts

Investing in these five stocks equally a decade ago returned 15.6% on average annually with dividends reinvested. By comparison, the S&P 500 returned a shabby 5.4% on average annually in this same period.

In addition to being leaders in their respective fields, these industry titans enjoy enormous scale, healthy financials, strong cash flow, and true staying power. As an added bonus, the average dividend yield of these five companies is roughly 3.1%.

Foolish bottom line
If I had to put my money in just one of these companies, I'd choose Caterpillar. Emerging markets account for a decent slice of Caterpillar's sales today, but they'll likely become a much larger part of revenues. Caterpillar recently posted a very impressive quarter, which included year-over-year quarterly revenue and earnings growth of 22% and 67%, respectively.

Inch toward more details on Caterpillar by checking out our brand-new premium research report. In the report, you'll find everything you need to know about Caterpillar, including key opportunities and risks facing the company. You'll even score a year's worth of analyst updates. This offer won't be available forever, so check out the details here.

Fool contributor Nicole Seghetti owns shares of BHP Billiton, Emerson Electric, and Caterpillar. Follow her on Twitter @NicoleSeghetti. The Motley Fool owns shares of Waste Management. Motley Fool newsletter services have recommended buying shares of Waste Management and Emerson Electric. Motley Fool newsletter services have recommended writing covered calls on Waste Management. The Motley Fool has a disclosure policy.


We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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