The "new normal" is upon us. PIMCO CEO Mohamed El-Erian used the term following the 2008 financial meltdown to describe the environment of slower economic growth, which he expects to be the rule, not the exception.
However, you can expect three major sectors to buck the trend and experience faster growth:
- Energy
- High technology
- Health care
Here's how the prudent -- i.e., long-term -- investor can profit from this.
Energy independence
Due to advances in drilling technology, the United States is on pace to become the world's largest producer of oil and natural gas, having recently surpassed Russia and Saudi Arabia. One promising strategy is to invest in companies that can move the nation's fuel -- now being produced at a rate of 25 million barrels of oil equivalent per day -- from inland and deepwater oil and gas fields to the refineries that are mostly on the Gulf Coast.
Many of these companies are structured as master limited partnerships, and as the result of tax law they're able to pay more of their profits to investors in the form of distributions than a typical corporation. These payouts are likely to grow along with energy production.
A retiree needing an increasing stream of income during the golden years should consider Enterprise Products Partners LP (EPD -0.17%). The company presently pays $0.68 per share quarterly and yields around 4.9%. Over the last five years, which roughly parallels the rapid rise in domestic energy-production, the payout has increased by 30% as earnings have risen by 50%.
EPD Dividend data by YCharts.
Enterprise operations are growing and include pipelines, such as the recently reconfigured Seaway pipeline which transports ethane from the Marcellus shale region to the Gulf, and facilities that convert natural gas to liquids (LNG). A second plant is planned to compliment the existing LNG terminal near Houston.
Innovation rules
Industries and companies that embrace innovation in their operations and products will provide great investment opportunities, even in a slow-growth environment.
Gordon Moore, co-founder of the chip-maker Intel, theorized in 1965 that the capabilities of computing systems would improve exponentially (that's the much-simplified version, anyway), and for the most part his theories have been borne out. For example, mobile phones have steadily grown smaller and more sophisticated than the "bricks" of yesteryear, all while becoming more affordable.
As technology continues to advance, innovative companies and their investors will profit, as in the past.
High-tech giant Apple (AAPL 0.42%) is one of the best innovators in history and is still at the top of its game, having recently been voted the world's top innovator for the ninth straight year in a survey conducted by Boston Consulting Group.
One of its new offerings, the iPhone 5s, contains several features not previously included in a smartphone, such as 64-bit computing architecture much like that found in desktops and laptops, as well as one-touch access using a fingerprint sensor in the "home" button.
Apple will probably build upon these innovations, and future devices will perform even better because of it. In turn, sales of these new items will keep generating tons of cash, some of which the company will return to investors in the form of dividends and share buybacks. Apple is in the midst of a $100 million buyback program and pays investors $12.20 per share of common stock, providing a tidy 2.5% yield.
Getting older
As populations of developed countries age, health care will be increasingly important. In the U.S. people are turning 65 at a rate of 8,000 per day now . As they get older they'll need various forms of health care, and in increasing amounts. Companies that meet their needs will be a good place to park your funds.
One is Johnson & Johnson (JNJ -0.23%). The medical-device and pharmaceutical giant is well positioned to take advantage of this trend.
It regularly grows its business through acquisitions: In 2012 the company merged newly purchased Synthes with existing entity DePuy to form an orthopedic-device and surgical-instrument powerhouse. The company also seems to have an endless supply of patent-protected prescription drugs like Invokana, Simponi, and Sirturo in the pipeline, which should generate loads of cash down the road.
Some of that cash will be returned to shareholders in the form of a dividend, now at $0.66 per quarter for a yield of 3%. The company has raised its payout each year for the past half-century. The dividend has grown more than 43% over the past five years alone:
JNJ Dividend data by YCharts.
Despite dire predictions of slowing economic growth, companies in the energy, technology, and health care sectors will provide long-term investors with fantastic opportunities. Enterprise Products Partners, Apple, and Johnson & Johnson are all poised to profit from ongoing trends in their industries, and their shareholders can benefit, too.
