Name: Here’s Where You Should Put Your Money in 2016
Uploaded: 2015-12-09
Duration: 6 min 40 s
Description: But be sure to stay away from healthcare.

What are some of the things that you're allocating toward that you think, either there'll be earnings growth or misunderstood companies, or there'll multiple growth. But where can we make money next year? Sure, so from my standpoint, given the view of the world that I already talked about, there's kind of three ways that I'm trying to, you know, create alpha in our strategy. One is These gas LDCs. Really interesting story. Some of these companies, there's not a lot out there. Can you spell that out for. Sure. So they're literally gas distribution companies. If you use natural gas heat, they provide the gas. What's interesting about them is, that the infrastructure to get the gas to your house is really old. And in some case there are some companies that are talking about 20, 30 years of runway that replaced the pipelines that were now built in the 1970's. So what's the opportunity there? So there's some upper single digit growth companies, they will do will in a turbulent economic environment, the multiples ought to stay high, you're getting a 3 % growth rate and the electric utilities are struggling to find their own growth, and so there's some M and A activity there. The other area that I like longer term, maybe as not as much for 16, but especially chemical area. They benefit from they're at the end of the chain as far as, you know, petrochemicals are concerned so their inputs are theoretically falling but they sell brands to the consumers and a lot of them are- So they can keep that high and their input prices low. That's right, they don't have to lower prices. So where should we go in 2016? Look, I mean, everything that everybody's talked about suggests a pretty strong disinflationary forces on the market. So disruptive technology, Uber is putting disinflationary pressure on taxi prices. Hotels are being hurt by Airbnb. And then demographics is another disinflationary force at play. So I think that companies with pricing power are gonna win, and that pricing might be more important than it's ever been in a disinflationary environment. And what's kind of surprising is that a lot of companies with pricing power reside in these big global brands, companies like Disney. Even through the worst recession that The middle- class American has felt, we were still willing to pay 6 % price increases a year to take our children to theme parks. I would argue that's the last thing you're taking away, is from your kids. Exactly, it's emotional. If you're cutting back in areas You're going to continue to spend on your kids because they whine and you want to make them happy. Right. So I think that those are the companies we want to look for. And that's just one example. But any company that can really price in an environment where I see tremendous Continue disinflationary pressure is where you want to be. Now your research suggests that there have been seven consecutive weeks of outflows from smallcaps. Yep. And, what you've said is, that it's interesting that's corresponding with weakening fundamentals for the companies themselves Exactly. And the view of the rate hike. Not being necessarily great for companies that aren't as financially flexible. Is that a theme that you think continues? Because small caps have now lagged for the better part of two years. Considerably for two years. Yeah, I think we could be in a bull market that's again led by larger, megacap companies. Disneys, Facebooks, right. Exactly. Because I think small caps are the ultimate credit play within equities. They rely on capital to grow. And as that cost of capital increases, we're seeing hiccups in the credit market, we're seeing issues, you know, fundamental growth within a small caps has been anemic, more anemic than for the SMP. Right. So I think that's gonna continue to suffer as we move in to next year. Jim, what do we do with our money next year? Well since I'm a glass half empty kinda guy. [ LAUGH ] I'm gonna tell the viewers and the readers maybe some places they should avoid. I love that idea. And so, and nobody's talked about healthcare. And one of the interesting things that we've done is look at the fact that although healthcare costs have begun To slower the percent of, of total economic growth in percentage GP. One of the things, I think that's happened in two thousand and late 14 and 15 is that the actual consumer is paying a higher part of it. It, it's in, companies continue to be [ UNKNOWN ] because of the APA, Obamacare and copays are higher. And people are actually paying more out of pocket themselves. Right. And so, I think that that actually is having an impact and is going to have a political impact of course on 2016 as well. I think the days of real easy unit and pricing growth in healthcare may be behind us and those are very elevated prices right now. And, So who's the most affected by that? Is that large pharma? Is that biotech? [ CROSSTALK ] Well, I think anybody that's been dependent, first of all, on raising prices aggressively due to their business strategy, whatever, is gonna be under a microscope, we know that. And I think that increasingly now People are going to begin to look at the downside of the ACA. We were short of healthcare in 2010 going into the bill. We read the bill, we covered our shorts. I wasn't smart to go along. That wasn't the place to be. I wasn't smart to go along. Because we saw it. It was going to be an immense positive for the industry going forward. Those days, the easy growth days- We've seen that already. Yeah, that's behind us now. And now we're beginning to see some of the negatives of the ACA. I think just to echo Steve's earlier point, and we see this in tech companies that were looking at, or basically trying to bring pricing transparency to healthcare. Which kind of echoes Yup. [ CROSSTALK ] As I pay more and more I'm actually much, much more focused on what the underlying cost is, where my copay's zero and my insurance, the employer's picking up 100 % of the cost. Now does the demography though of the world offset that given the The aging population, not just here but Europe, Japan, China now, doesn't that offset it some? I think the thing that's missed is how radically different pricing is even within a single market. I'll just give you a 30 second story. Which is I think he is going to have a heart attack. 20 seconds. [ LAUGH ] I had to have an MRI and it turned out that the insurance company called me and said if you go to this provider it's $ 900. If you go to this provider, it's $ 3, 000. Would you mind going to this provider? They were 10 blocks apart. I said, why should I do this? Cuz in this case, I had no co- pay. He said, because this is the only way we're gonna reduce the cost of healthcare, which is an unbelievable answer from somebody from a call center. Right. But this is all because of technology. And that MRI was booked the same day. And so, I think that effect, the pricing transparency technology is gonna come to almost every market. [ MUSIC ]

But be sure to stay away from healthcare.