3 Undeniable Trends Investors Can Profit From

Investing is often focused on the minute details of a company like the balance sheet, income statement, and cash flow statement. But investors shouldn't forget that macro forces are just as important in our investing decisions. The world is changing every day, and the world we invest in a decade from now will be different than the one we invest in today.

Below I've highlighted three of the most important trends in the world and a few ways investors can take advantage of them.

The world's population is growing
Not only is the world's population still growing, more people are expecting a higher standard of living as countries like China, India, and Brazil grow the middle class. This means the world will require more food from less land and fewer workers. The recent explosion of corn prices highlights just how important farming will become, even as few people go into the field in the U.S.

Investing in companies that make agriculture more productive with less land will take advantage of this macro trend. Monsanto is in the business of engineering seeds that deliver more yield to farmers. The company invests heavily in developing and protecting its product, which often rubs people the wrong way -- but it's been good for business.

Monsanto's seeds won't grow without food, which is where Potash (NYSE: POT  ) and Mosaic come in, providing fertilizer to farmers.

Deere & Company is another leg of the agriculture food chain and one of the most important to productivity. Deere's products will be key to not only U.S. agriculture productivity, but also productivity around the world. Trading below 10 times trailing earnings and paying a 2.4% dividend yield are nice treats for investors as well.

It's also worth noting that if macro predictions of climate change come true, these companies will become even more vital to farmers. Predictions are that weather events will become stronger and more frequent (not necessarily just warmer), and  a hot dry summer and a hurricane touching land this week may be a sign of things to come.

Energy is becoming harder to come by
In Texas 111 years ago, oil drillers struck black gold at Spindletop, shooting oil 150 feet in the air. The well eventually produced 100,000 barrels of oil per day and started an oil drilling boom in Texas.

Today, there's a similar renaissance in energy because of fracking, a technology that has unlocked both oil and natural gas in the U.S. But as successful as fracking has been, there has yet to be a fracked well (to my knowledge) that has produced 100,000 barrels per day. Fracking expands the amount of oil we can produce, but it does it at a higher cost than traditional wells.

Offshore drilling has run into a similar conundrum. There's lots of oil offshore, there's no doubt about that. But wells are being drilled in ultra-deepwater and hazardous environments, not the shallow water that once dominated the industry. SeaDrill (NYSE: SDRL  ) , Transocean, and Noble have been building rigs as fast as they can, betting that the deepwater boom continues. But at Hercules Offshore an expanded bet on shallow water is leaving the company with massive losses. Even though oil isn't reaching record highs, the dayrates explorers are willing to pay for an ultra-deepwater rig are reaching new records, showing the demand that exists in the industry.

The simple fact is that oil and natural gas are harder to come by than they were 100 years ago, a fact that's true around the world. So how can investors profit?

Companies that make or own equipment that makes complex drilling possible are where investors should focus. Halliburton (NYSE: HAL  ) developed much of the technology behind fracking, SeaDrill is a bet on continued ultra-deepwater drilling, and National Oilwell Varco (NYSE: NOV  ) provides a plethora of on- and offshore services to drillers.

For those looking for an alternative to oil drilling, solar is already the fastest growing area in energy in the U.S. and will continue to grow. First Solar (Nasdaq: FSLR  ) and SunPower are two of the major players worldwide and their financial fortunes are starting to see an uptick. The solar industry has been battered for the past few years but this will be a major area of growth in the next decade and beyond.

Debt can only get more expensive... probably
The Fed has worked tirelessly to keep interest rates low in the U.S. and even countries abroad have extremely low interest rates, but it can't last forever. Well, we've been saying that for years but eventually this prediction must come true.

One way to bet on rising interest rates is to buy ProShares Short 20+ Year Treasury ETF. This ETF holds U.S. Treasury securities that have maturities over 20 years and have more than $250 million outstanding. There are currently 19 constituents with a weighted average maturity of 27.85 years and a yield to maturity of 2.68%. So, how will this profit if rates go up?

A short ETF sells Treasuries and pays the coupon while it holds it and then sells the bond when it reaches 20 years' maturity. A 30-year Treasury bond recently sold for $989.68 on a $1,000 par and pays a $2.75 coupon (paid biannually). The ETF would have to pay the coupon while it is short the bond and hope to make up the difference by buying it back for a lower price when the bond reached 20 years. In this case, the implied yield would have to be about 5% annually in 10 years, still a low rate in historical terms. If inflation runs rampant this would be a big winner in the end.

Investors should also watch the leverage in companies they own and how much is tied to floating rates or debt that will need to be rolled over in the future. Companies like Caesars Entertainment and MGM Resorts use floating rates to pay for casino development and acquisitions, but if rates rise they could be in real trouble.

Foolish bottom line
Growing population, more difficult energy extraction, and rising interest rates are three macro trends investors should keep an eye on. Having exposure to the right side of these trends can help put the odds on your side.

For three more investments that put growth trends on your side, check out our free report highlighting three ETFs for the recovery. It's free when you click here.

Fool contributor Travis Hoium owns shares of SunPower and manages an account that owns shares of SeaDrill and SunPower. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of SeaDrill. Motley Fool newsletter services have recommended buying shares of National Oilwell Varco, SeaDrill, and Halliburton; and creating a modified stock repair against synthetic long position in Monsanto. 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.


Read/Post Comments (34) | Recommend This Article (128)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 29, 2012, at 5:27 PM, TheCommonTulip wrote:

    Great post. I'm a firm believer in the long term Agriculture/Energy bull market due to population growth.

  • Report this Comment On August 29, 2012, at 6:06 PM, SCLInvestor wrote:

    Are you guys serious. What about the impending going over the cliff and the stock market tanking completely?

  • Report this Comment On August 29, 2012, at 6:29 PM, s73v3r wrote:

    @SCLinvestor: If you believe that is going to happen, and soon, then why are you looking for advice on an investment site that deals primarily with investments on stocks?

  • Report this Comment On August 29, 2012, at 6:57 PM, spmccown wrote:

    I agree it is a great post. Another long term trend not mentioned here, although on many other posts, is the aging of the Baby Boomers. Health care, Nursing Homes, Pharmaceuticals, and funeral homes shouldn't be ignored.

  • Report this Comment On August 29, 2012, at 8:13 PM, DividendsBoom wrote:

    The big kahuna has spoken

  • Report this Comment On August 29, 2012, at 10:51 PM, MASTERHF wrote:

    I agree with the investment ideas of agriculture and energy stocks. There are 4 big emerging economies (BRIC) with billions of persons that are starting consuming different food (more meet, milk, cereals) and with industries that need energy. But this 2 ideas will give bigger returns in the middle term.

    In the short run i think precious metals will lead the ranking of the investment returns. And gold stocks are very cheap! See:

    https://sites.google.com/site/higheralphaideas/home/fast200g...

    https://sites.google.com/site/higheralphaideas/home/allroads...

  • Report this Comment On August 29, 2012, at 11:08 PM, timddeb wrote:

    Monsanto should be a four letter word.

  • Report this Comment On August 29, 2012, at 11:59 PM, lowmaple wrote:

    timddeb. Cash?

  • Report this Comment On August 30, 2012, at 12:39 AM, gcp3rd wrote:

    MASTERHF - I'm ready for my precious metals fund to recover. :-)

    timddeb - I pretty much agree with you. I think it's Food, Inc that documents their antics. Please view it if you haven't. Then decide if you can sleep at night profiting from that company. :-D

    Read "The Coming Generational Storm" for great insight into population demographics including baby boomers. This trend's importance really can't be understated - and also find out which BRIC will have a declining population soon, if not already...though you can probably guess it. :-)

  • Report this Comment On August 30, 2012, at 1:06 AM, TerryHogan wrote:

    @kahunacfa

    You might want to review the Code of Ethics and standard VII (B) of the Standards of Professional Conduct.

    Your usage of 'CFA' in your user name is definitely not in keeping with the spirit of the standards, and if Kahuna is a pseudonym, appending the CFA to it is not in keeping with the spirit of the standards either.

    At the very least, you might want to check with the CFA institute.

    Cheers.

  • Report this Comment On August 30, 2012, at 7:36 AM, dividendgrowth wrote:

    The author is stuck in the past bull market

  • Report this Comment On August 31, 2012, at 9:31 AM, marexartb wrote:

    Don't forget about long-term care facilities.

  • Report this Comment On August 31, 2012, at 12:54 PM, Johny205 wrote:

    Agriculture real estate (tillable land) has been on fire the last few years. The first quarter percent change from prior year was 25.2% in Minnesota, 37.7% in South Dakota, 38.6% in Nebraska, 27% in Iowa, and 24% in Kansas, according to www.kansascityfed.org/research/indicatorsdata. In central MN where I live, land that was selling for $2,000 an acre in 2005 is now selling for up to $7,500 per acre for prime land. This makes you wonder if you should buy up crop land or if this is the next bubble?

  • Report this Comment On August 31, 2012, at 1:55 PM, BoulderTrader wrote:

    I agree with the importance of agriculture, but Monsanto is bad news. If California's Prop 37 passes this year, then products containing GMO's will have to be appropriately labeled. That, in turn, would likely have a very negative impact on Monsanto's bottom line, as the vast majority of consumers don't want to eat genetically modified foods. Many other countries have already banned genetically modified crops altogether.

  • Report this Comment On August 31, 2012, at 2:45 PM, RockenD wrote:

    Travis,

    Not to be lazy but would you please put the stock symbols next to all the public companies you mention, makes the research a bit easier.

    Otherwise I agree with the consensus - very good article.

  • Report this Comment On August 31, 2012, at 3:06 PM, TMFMTHead wrote:

    There is only one word that we need to know:

    Innovation, Innovation, Innovation

    OK, so that is three words, well one word said three times.

    The companies that innovate, that truly create innovation, double and triple then do it again. Think Apple and others. Those that do not innovate, that rely on the same method or product die. Think Kodak. They would not, could not believe that photo paper and film would ever go away. Hummm when was the last time you took a roll of film to be developed?

    Innovation is what makes or breaks a company.

  • Report this Comment On August 31, 2012, at 3:11 PM, erkaye wrote:

    Johny205,

    Farmland is a bubble without a shred of doubt. It has probably already peaked. If not the, rise in interest rates the author alludes to will pop it.

    This has happened over and over, most recently late 80s-early 90s, and will happen again. The lack of liquidity is what finally kills the 'investor'. Unfortunately it really hit legitimate farmer hard.

  • Report this Comment On August 31, 2012, at 5:45 PM, malamadavid wrote:

    Author not only glosses over the problems and practices of Monsanto, but shows the need for some really long term social and environmental investment perspective at Motley Fool.

    Monsanto is ruthless with farmers and endangers the long-term viability of the agriculture you are trying to profit from. An investment in Monsanto is really micro, not macro!

    Catch up guys!

  • Report this Comment On August 31, 2012, at 8:06 PM, setamluos wrote:

    While I agree with most of your picks and food and energy will be very important I believe you forgot to put water in there. All the fertilizer and reengineered seed will do very little good if you are in a drought stricken area.

  • Report this Comment On September 01, 2012, at 1:16 AM, 48ozhalfgallons wrote:

    Coffins

  • Report this Comment On September 01, 2012, at 12:17 PM, PeterVanKan wrote:

    Nice read. However, I as a European, Europe being perhaps slightly more concerned about environmental and ethical issues than the US, I find it strange to see Monsanto favorably mentioned, here. The damage this company has done - to the planet, to communities, to people's health, to farmers - is incalculable.

    All around the world ordinary people are paying the price for the 'profit at all costs' mentality of the last two decades. Monsanto, lead by criminals, is the financial avatar for pure evil. Not a place for decent people's money.

  • Report this Comment On September 01, 2012, at 2:10 PM, Looksha wrote:

    PeterVanKan, I am aware of some of the feelings about Monsanto in Europe, but I am still looking for documented evidence of "incalculable damage", and "pure evil." Please share some data which can be researched and verified.

  • Report this Comment On September 02, 2012, at 2:04 AM, wayoutie wrote:

    Monsano has taken an environmental beating in the past few years. Hungry people paying $50.00 for a half a loaf of bread can tolerate a little bad enviroment. Lets give them a little food to go along with their water from the street, which is also their sewer als runs.

  • Report this Comment On September 02, 2012, at 10:34 AM, ChancieGardener wrote:

    It's not just Europe that despises Monsanto; see this from the good old US of A...http://www.organicconsumers.org/monsanto/index.cfm

    There is a huge worldwide ground swell of anti Monsanto sentiment and I, personally, would not invest a red cent in this nasty company...both on an ethical and a common sense basis.

    Similarly I would not buy stocks of any Pharma' company.

  • Report this Comment On September 02, 2012, at 11:43 AM, LSLOANPDX wrote:

    15 stocks/etfs noted in article.

    only 5 had symbols

    this incompleteness is not worthy of a "premium" service

  • Report this Comment On September 03, 2012, at 12:48 AM, ershler wrote:

    Lots of Monsanto haters out there, why no comments about Syngenta or Dupont trying to do the exact same thing. GMO's are not going away and the main threat to Monsanto is maintaining their leadership in seeds & traits.

  • Report this Comment On September 03, 2012, at 10:52 AM, TMFFlushDraw wrote:

    @RockenD and @LSLOANPDX

    We have tickering rules that keep me from using more than 5 tickers in any given article. Sorry, I don't make the rules.

    You'll notice the same thing in all of fool.com.

    Travis Hoium

  • Report this Comment On September 03, 2012, at 7:15 PM, gfm2014 wrote:

    It always brings a cynical smile, a grimace really, when I read about starving African nations refusing drought-hardy Monsanto seeds because they are "genetically modified." Such is the obsession of the tree-huggers who would watch millions starve in order to stave off some mythical environmental catastrophe. I would agree that Europeans truly are "ahead" of America in this regard...

  • Report this Comment On September 07, 2012, at 2:47 PM, princejames2005 wrote:

    What will happen to America when oil runs dry I think America needs to invest in ethanol and solar energy wind and sun and water power...

  • Report this Comment On September 07, 2012, at 2:50 PM, princejames2005 wrote:

    Why take earth to space when we could bring space to earth...like the Jetsons...

  • Report this Comment On September 07, 2012, at 3:34 PM, princejames2005 wrote:

    I cant even trust the supermarket any more because every time I go to pick up some groceries it has chemicals in drugs in it thanks to monsanto i mean would you stust a drug dealer holding a syringe what's drugs and chemicals in it and bringing bread for him to inject it into the bread and for him to tell you to go home and eat it I don't think so...

  • Report this Comment On September 07, 2012, at 3:42 PM, princejames2005 wrote:

    My father's dad work for senator McCain and built the streets in arack and Highway 75 in Tulsa and he works for Halliburton bp oil and the people in my family known as the Warren's family are the richest of Texas i am a Warren thay build the buildings in Texas i call it Warren's oil. plus I'm part European and American stronger than both.

  • Report this Comment On September 07, 2012, at 3:46 PM, princejames2005 wrote:

    Not works for bp worked for bp it's this voice recognition system it's too sensitive on this mobile web. T-mobile

  • Report this Comment On September 09, 2012, at 10:28 PM, autoinsider wrote:

    Disagree with the fertilizer angle. There are literally millions of tons of manure slurry being spread on the corn and soybean fields of America for FREE.

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