• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Markets
  3. / China

3 Simple Investment Themes To Follow for 2016

They involve the earth's warmth, Chinese discretionary income and aging baby boomers.
By BRIAN SOZZI Dec 30, 2015 | 08:00 AM EST
Stocks quotes in this article: DECK, COLM, SMG, NKE, PLNT

If you are to make one resolution for 2016 with respect to buying stocks, make it a promise to understand the big themes driving a company's financial statements.

For example, you don't necessarily want to own an Apple (AAPL) simple because "everyone wants the latest iPhone." The more intelligent thought process, one that could open up ideas beyond just Apple, would be to understand human beings want to be connected to real-time developments around the clock. That growing hunger by people to know more things quicker will continue to underpin sales not only for Apple, but for the broader supply chain of chip manufacturers and a glass maker such as Corning (GLW).  If there is no understanding of the theme causing profits to rise or fall, then knowing whether to buy a stock or sell it becomes infinitely harder.

Seeing as the world of finance is essentially dead this week thanks to the New Year's holiday, I decided to develop three simple themes for 2016. In my view, the themes below are poised to become even stronger next year, and indeed are almost guaranteed not to crumble barring a global depression or new Cold War.

Theme #1: Earth is getting warmer

Even if you don't buy into what is causing the planet to get warmer, the reality is that the planet is getting warmer. The World Meteorological Organization expects global average temperatures this year to reach a record high. By the end of 2016, based on most forecasts floating around, global temperatures will reach another record high, which would mark three years in a row of warmer temperatures. 

In other words, 2016 could be another year of warm winter weather that wreaks havoc on sales and profits at outdoor apparel manufacturers such as Deckers Outdoor (DECK) and Columbia Sportswear (COLM).  Department stores such as Macy's (M) could be harmed if they didn't learn from this year's warm fall by planning inventories of winter jackets and sweaters in 2016 lean and mean. 

On the other hand, with temperatures staying warmer for longer in a given year, I think that will mean more people tending to their gardens and lawns longer. Keep in mind, homeowners traditionally have let plants die after October and haven't returned to gardening until the spring. I fancy people will want to take advantage of the abnormally warm weather and keep their home exteriors as neat as possible.  That should benefit Scotts Miracle Gro (SMG).

I like how the company is preparing to expand Roundup to new categories in 2016. Further, it struck a shrewd deal with Monsanto (MON) to gain a first peak at the company's product pipeline, a critical move to maintain a competitive lead over rivals. Considering this, as well as tame inflation for raw materials Scotts uses in production, the company should fare well. The stock has gained about 5% in 2015, outperforming the major averages.

Theme #2: The Chinese people will spend more on frivolous things

The Chinese are moving beyond only being able to afford the basics of life, and their discretionary spending is taking off.  In turn, there is a huge investment theme being created despite the slowdown in broader GDP.

According to McKinsey, growth in spending on annual discretionary categories in China is forecast to exceed 7% between 2010 and 2020, and growth of 6% to 7% annually is expected in a second category of "seminecessities." McKinsey says both of these categories are growing faster than spending on actual necessities, which are expected to grow around 5% a year, or about the same as expected GDP growth.  While the government's crackdown on luxury items will continue to hamper names such as Louis Vuitton, Coach (COH) and Prada, the merchandise that Nike (NKE) sells does not fall under the luxury category. 

I expect Nike to get a huge boost in its Chinese results in 2016 as the government promotes exercise and as more explore the brand with their newfound disposable income.  The rising global popularity of basketball also will be a boon to Nike in China. 

Theme #3: Baby boomers don't want to die just yet

In spite of many years of draining hard work, baby boomers are dead-set on not kicking the bucket just yet. They not only want to prolong their lives, but also the quality of those lives; after all, what is the sense of having a nice nest egg if one can't walk on a plane to take a vacation.

To get a handle on this investment theme, consider these tweet-worthy statistics. Born between 1946 and 1964, there are about 76.4 million baby boomers in the United States, and in 2016 they will all be approaching or at retirement age. In 2016, so many people will be drawing Social Security that the money needed to cover benefits will be more than what those workers from Generation X/Y will be paying in taxes.

Rather than try and invest in food companies and retailers seeking to hawk organic food, the better way to play baby boomers fighting to stay alive longer is through a gym company such as Planet Fitness (PLNT). The membership rate is senior-friendly (dirt cheap), and the setting is what a senior needs (lots of circuit exercises/machines to build up confidence in working out). 

From a business standpoint, I am a fan of the company's franchise business model (highly lucrative), significant pipeline of new gyms for the next five years (franchisees sign agreements in advance) and the sizable lead the chain has in terms of locations operated. Scale is king in this business, and Planet Fitness has it -- along with a desire to expand more aggressively outside the U.S.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

Employees of TheStreet are restricted from trading individual securities.

TAGS: Investing | U.S. Equity | China | Markets | Stocks

More from China

Hong Kong Marks 25 Years Since Handover With New Version of History

Alex Frew McMillan
Jul 1, 2022 7:47 AM EDT

Just don't call it a handover - Chinese President Xi Jinping has been on a whistle-stop tour of Hong Kong, which we're now told never belonged to the British.

Naspers to Unlock Its Own Value By Selling Down $129B Tencent Stake

Alex Frew McMillan
Jun 29, 2022 6:32 AM EDT

Naspers and its investment-holding company Prosus will sell down their Tencent stake and buy their own shares, with both companies trading at big discounts to NAV.

Zero-Covid? NATO's China Challenge, Quarter-End Volume, Yields, Trading Chevron

Stephen Guilfoyle
Jun 28, 2022 7:23 AM EDT

There was a time when Covid vaccine news was headline material. Not now, though, and this news could matter.

Chinese Tech Company Ximalaya Pulls Planned IPO Yet Again

Alex Frew McMillan
Jun 24, 2022 6:30 AM EDT

Poor market conditions and the uncertain status of Chinese tech listings cause the podcast market leader to put off its Hong Kong IPO.

Tuesday's Rally, Island Reversals, 5 Observations, Metaverse, Apple in China

Stephen Guilfoyle
Jun 22, 2022 7:28 AM EDT

Biden said: 'We need more money to plan for the second pandemic. There's going to be another pandemic. We have to think ahead.' Absolutely terrifying.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 09:49 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Stop Wishing, Hoping, and Praying and Take Control...
  • 07:59 PM EDT PAUL PRICE

    Very Good Quarterly Numbers From Bassett Furniture (BSET)

    Bassett Furniture blew right through analysts es...
  • 04:41 PM EDT PAUL PRICE

    First-Half Results - Putrid; Second Half Results - Likely to Be Much Better

    It's great that we're done with June. 2022 mark...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login