Looking for More Rose-Colored Swans

 | Mar 16, 2012 | 2:30 PM EDT  | Comments
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Being of Irish descent and a sports junky, I'm anticipating a busy few days with St. Patrick's Day and the NCAA tournament falling on the same weekend. Before I head out to purchase my famous corned beef and cabbage fixings, I want to spend a little more time thinking about possible Rose-Colored Swans that could make a positive difference in our portfolios. We hear doom-and-gloom scenarios almost every day, but it is worth considering the opposite side of the coin.

I found an interesting survey from the Harvard Business School that I think is mandatory reading for anyone who has a stake in our economic future. Professors Jan Rivkin and Michael Porter surveyed 10,000 alumni on the subject of U.S. competitiveness and possible solutions. The data are of great interest to me, as I think most of the solutions to our economic problems will ultimately come from business, not political intervention.

The general tone of the report is worry. Business is justifiably worried about the competitive state of the U.S. business community. The Harvard graduates believe we are losing ground to the rest of the world and could eventually fall behind the emerging markets. I do not want to dwell on the current negatives revealed by the survey. Instead, let's look at some of the proposed solutions and areas our business community think need to be addressed to build a better future. Many of the solutions were political or tax related (I'll withhold judgment for now as my Real Money column is about making money, not making noise), but many of them are investable and worth further research.

One of the major concerns of those surveyed was related to infrastructure. A surprisingly large percentage of respondents felt there is real danger of falling behind, not just in our basic infrastructure but also our communications infrastructure. To stay competitive in a global business environment, these concerns will have to be addressed. The spending to maintain all levels of infrastructure will flow not just through many of my favorites, such as Sterling Construction (STRL), Granite Construction (GVA), L.B. Foster (FSTR) and other classic engineering and construction names, but also through communication infrastructure companies. My favorite in this sector is Arris (ARRS), but there is going to be a role for companies like Corning (GLW) and even Cisco (CSCO).

Another major area of concern in the survey is education. At all levels of the education process, we have lost the clear leadership we once possessed, which is also very investable. The answer is not the for-profit education companies, as that is a broken business model and I am short those stocks. However, many companies make educational technology products designed to improve the learning process that could benefit from an increased focus on education. We did well with LeapFrog (LF) last year, and other stocks to consider at the right price might include names like K12 (LRN) and even Apple (AAPL).

We hear the bad news every day. You have to be living in a cave not to be aware of the political, economic and global headwinds facing our nation's future prosperity and well-being. There is no doubt in my mind that there will be intense turmoil along the path to prosperity. As investors, we need to keep in mind that the U.S. and the stock market have both seen these challenges before and overcome them. If we remain short-term cynics and long-term optimists, we can use that turmoil to make safe and cheap investments in a, hopefully, brighter future. Look for Rose-Colored Swans and buy them when the Black Swans dominate the short-term market environment.

(For readers planning to be in the greater Baltimore area, the family and I plan to be at An Poitin Stil in Timonium, Md., Saturday for the Donning of the Green festivities. Stop in and join us for a pint and occasionally coherent conversation.)

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