Long-Term Investment Themes

By:  Philip Weiss | CFA , CPA – Chief Investment Analyst

When selecting stocks for client portfolios, we seek securities that we believe have the potential to generate total annual returns of at least 10 percent to 15 percent over a three-to-five-year period. When taking a long-term approach,  it is important to try to identify broad economic and environment trends instead of focusing on the current market environment.

As part of our research process, we spend time gaining an understanding of broad themes that we think could have a more lasting impact on businesses. It is also important to gain insight into the market potential associated with such themes.  We then look to identify attractively valued companies that we believe are well-positioned to take advantage of these trends.

 The following are three trends from which we believe companies can benefit and that might lead to long-term gains:

  • The shift of retail businesses from brick and mortar to online;
  • The continued shift away from PCs toward mobile devices; and
  • Increased U.S. production of oil and natural gas.


A long-term change in shopper habits has reduced in-store traffic–perhaps permanently–and shifted pricing power away from malls and big-box retailers.  In the most recent holiday season, the National Retail Federation estimated that online and other non-store sales grew 9.3 percent, well ahead of overall growth of 3.8 percent.

According to The Wall Street Journal, measured in-store traffic in November and December 2013 was around half the level seen during the same period in 2010—a time when the economy was in a much more fragile state.

In order for a retail store to do well in this environment, it has to have a strong online presence. In today’s world, consumers face ever-increasing demands on their time. It is typically a lot easier and cheaper to purchase goods online, particularly if shipping is free and if it is relatively easy to return unwanted goods. Shoppers don’t seem to be using physical stores to browse as much as they used to either. Instead, they seem to be figuring out what they want online.

From an investment perspective, these changes in shopping habits can make investments in traditional retailers less desirable. At the same time, they can make those businesses that cater to online customers more attractive.


The personal computer market is shrinking. Sales of traditional PCs declined meaningfully in 2013, while tablet shipments surged. Gartner Research expects tablet sales to grow even more in 2014, narrowing the margin between tablet and PC shipments from about 120 million in 2013 to just over 18 million units.

While growth in mobile phone shipments is slowing, consumers are using mobile devices in their everyday lives more and more.

Companies that market components that are integral to the production of mobile devices have achieved meaningful growth as a result of this trend, but there should be more growth ahead. This change in consumer preferences is also affecting industry leadership—the landscape is changing. Companies that are best positioned to take advantage of changing consumer preferences and lifestyles should also benefit.


In the summer of 2008, prices for both crude oil and natural gas spiked to all- time record levels only to plummet during the onset of the Great Recession. While  oil prices have come within roughly 80 percent of their peak, natural gas prices have not even approached 50 percent of their record highs. The deep recession that came shortly after prices surged is at least partly to blame. However, record prices also roughly coincided with the start of a “renaissance” in the U.S. oil and gas industry, when oil and gas producers were in the early stages of finding significant sources of new oil and gas reserves in the U.S.

In the 1990s, operators began using different drilling techniques and equipment. Over the last five to ten years, many new oil and natural gas fields have been discovered that can be drilled economically by using “unconventional” drilling techniques. This has allowed operators to produce meaningful volumes of oil and natural gas from fields such as the Bakken Shale (North Dakota), the Marcellus Shale (Northeast U.S.) and the Eagle Ford Shale (Texas).

As a result, U.S. production of crude oil, natural gas liquids and natural gas has far surpassed expectations of just a few years ago.  Stronger-than-anticipated  production has helped keep prices lower than many expected, benefiting many U.S. businesses. The availability of low-priced feedstocks has aided the competitive position of U.S.-based chemical companies and refiners. It is also helping the operations of companies that manage the transportation and logistics of moving oil and natural gas from one location to another.


The market moves higher or lower every day. Many times, the day-to-day movement is reflective of short-term changes in sentiment that have little lasting impact. While we are aware of current events, we are looking for investments that will add long-term value to client portfolios. We believe it is important to identify long- term themes such as those discussed above as part of our investment process. As a result, we focus a portion of our research process on identifying companies that are well- positioned to capitalize on such themes.