A Power Trend That Won't Quit
12/10/2012 10:00 am EST
In this interview, Chris Versace explains what he means by "power trends," and uses a particularly strong example to lead into a stock ready to invest in today.
We're talking power trends with Chris Versace. What are they and how do they work, Chris?
Well, a power trend is a way to identify a long cyclical shift in the market. Some examples of power trends would be the fattening of the consumer; living longer lives; always on, always connected.
Those are the ones that I talk about all the time in my newsletter, Power Trend Profits, but in reality, what they are is the intersection of evolving demographics, psychographics, economics, sometimes a shift in technology, all of which, taken together, transforms consumer behavior.
It forces a company to change the way it does its business. Sometimes companies are capitalizing on that power trend. Other times, they're left vulnerable, and we obviously want to be investing in one's that are capitalizing on those trends.
Some of these trends then, I mean, you're looking at trends that are occurring over three, five, ten years, quite possibly that.
Well, it can be. Our time horizon with Power Trend Profits is longer term, and we can take positions up to two years if we need to. It really just depends on the individual power trend.
But of course there are companies that are evolving based on price targets and other things that we might be very bullish for a long period of time on a company. Or we might have a shorter time horizon, but then we can always look at another company to replace it, kind of like a red shirt in basketball.
Sure, and you can be bullish, you can see the power trend growing, but the companies might change within that trend.
Absolutely. Absolutely. Just because there's a company that at one point in time at a particular stock price is well positioned inside the power trend doesn't mean it'll always be so.
So, we're always evaluating new companies potentially making a swap if need be, but if all things are going well and the company continues to perform, and underlying fundamentals are good, we obviously want to stick with companies that are well positioned.
So, you're looking at the fundamentals as well as the technicals in this. This isn't a technical-based service. You're not spotting a trend and then playing the technicals, you're actually looking at how the companies working with the consumers. Is it all consumer-based?
No, it's not, and you're correct in that I'm not necessarily a chartist. If anything, given 20 years in equity research, I am far more of a fundamentalist than anything else. But I do kind of laser in on entry and exit points and will consult the charts, the technicals, but I always believed that there's a number of things you need to bring to bear-there's no silver bullet.
Right. So, it's more confirming-the technicals you use to confirm your fundamental analysis.
Correct. Yes, absolutely right.
Do you have any that you like in particular?
Oh there's-I like all the power trends.
Right, large stocks within those trends. Tell me about a couple of trends and maybe a couple of stocks.
Sure. One that I've been talking about quite a lot of is the rise and fall of the middle class. You know, we take a look around the United States. We had unemployment over 8% for three years, wages are stagnant.
The question is what is the health of the middle class here...yet, if we look outside the United States to the emerging economies; China, India, and so forth, we're seeing rising disposable income, increase in purchasing power, and a real trade up in the consumer lifestyle over there. So, we're looking for companies that are really improving their position in that.
The one that we really like is International Flavors and Fragrances (IFF), because it's an ecosystem play, if you will, on a number of consumer product companies-Colgate-Palmolive (CL), Pepsi (PEP), and the like that are really capitalizing on growth in these emerging regions.