The Main Investment Themes for 2015

Despite the fact that equity markets started the year with an uncharacteristic negative tone and persistent concerns regarding the unsustainability further growth in equity markets, equities still remain a preferred asset class; if not the preferred asset class. Nevertheless it would be naïve to expect a year in which market prices will increase all the way up to next Christmas; in all probability markets this year will be more akin to Space Mountain rather than a carousel. In 2015, more than in the recent past stock selection will probably characterize investment success.

The following are my preferred themes for the first part of the year. These themes reflect mainly the European and US economic outlook. Companies may fall under more than one theme and probably indicating better investment potential.

Market Leaders

My preferred theme; these companies typically have excellent products or services, have already gone through a restructuring process, benefit from structural cost advantages, have high barriers to entry and are experiencing favorable market conditions. These companies are typically expensive to buy when the market is trading at a peak but should be grasped during market ‘corrections’. In this category, one can mention EasyJet, BMW, Volkswagen and Whitbread in Europe. Kroger, Apple and Delta would fit the bill in the United States.

Exchange Rates

With the Euro expected to weaken further, last year’s negative impact on most European companies should be reversed. Multinational companies geared on exports are expected to perform better. Examples that come to mind are European pharmaceutical companies, automobile companies and airlines. Airlines will also benefit massively if oil prices remain at current prices.

Quantitive Easing

With market participants eagerly awaiting Quantitive Easing from the European Central Bank the equity market should become the natural place to invest. The financial sector and peripheral European indices are expected to outperform in this scenario. However, to date there is no clear guidance as to when and in what form QE will come. Thus, this is rather a 50/50 bet for the time being.

Cash Rich Companies

I favor companies that have accumulated massive amounts of cash. These companies are expected to increase their appetite for growth or distribute their cash pile to shareholders in the form of increases in dividends or share buybacks. These companies have been holding on to cash as a buffer; this buffer may no longer be necessary if signals of an improving economy start coming through. Volkswagen and Apple immediately come to mind in this category, but other firms cash-rich firms may be highlighted through a quick review of a company’s financial statements.

Market Comeback

These are very good companies that however, happen to operate in a downturn sector. These companies will excel once growth returns to their respective sector. The construction sector in Europe may be an opportunity for believers of a European recovery. Another sector that is already outperforming but may continue on this trend is the Airline sector.

Technology

Technology continues to transform our daily lives but the incredible pace at which technology is being included in every-day objects is breathtaking. In this category, the suppliers to the global tech firms are a preferable investment, albeit a more volatile one. Valeo in Europe provide automobile companies with the latest technology in emissions, engine management and driving assistance; areas considered essential in future cars. Likewise, ASML is at the leading edge of tool making for tech companies. Thus giants like Samsung cannot compete without the tools provided by ASML. In the United States companies like SanDisk and Micron Technology are providing faster and faster chip memory that make today’s gadgets possible.