There are many industries that I have been looking at for potential investments. After the recent recession, there are many industries that obviously have a lot of value and will return to growth once the economy turns around. I think the two most obvious industries would be banking and real estate. These two industries have made amazing runs since their bottoms and you will most likely not see these types of gains in the future. I believe the best way to play these now are buying the related industries.
Banking had a near collapse last year with many of the nations largest banks having the US Government as a major stock holder. With all the fear in the market, nearly every bank was priced that there were about to fail. This obviously wasn't the case and once the banks got their capital, their share prices quickly rebounded and if you were lucky you could have made many times your money in a couple of months. Unfortunately the big moves in such stocks as BAC, AIG, C, FNM, FNA are most likely over. For those of us who do not have crystal balls, we are left to choose another growth industry. I believe that industry is insurance.
Insurance is a great business where people give you money on a consistence basis and sometimes you have to give some back. Warren Buffet has made a pretty descent career off the industry and thats good enough for me. I believe the best way to play insurance would be to buy CNinsure (CISG) - a Chinese insurance broker. Chinas population is exploding and CISG is in a perfect position to profit from that. Investors Business Daily recently suggested buying property and casualty insurers. One of their top rated stocks in that industry is Fairfax Financial Holdings (FFH) with a Composite Rating of 96.
I have very little hope for future growth in real estate. Many REITs are being released to invest in undervalued commercial and home mortgage loans. REITs naturally have a very high dividend because of their tax shelter. If you are able to pick the right one, you would get a double play with a dividend and capital appreciation. If you are hoping to play the recovery in real estate another play would be Lumber Liquidators (LL). They are in the business to sell hardwood floors at a great price, which is obviously a plus in a recession.
These two ideas play the housing return in two different ways. REITs are going to benefit if prices rise, while LL would more likely benefit if we just started building a lot of houses again. I believe real estate is undervalued right now, however I think LL has a couple of trends it its favor. One is that with the continued weakness of the consumer, low cost options will continue to be very favorable. Another is that even in the down economy, LL has been growing with means it has most likely been taking market share from its competitors.
