This commentary originally appeared on Real Money Pro on Oct. 25 at 8:34 a.m. EDT.
What might be the next big thing the marketplace?
I would offer four possibilities -- two themes relate to the possible resolution of the world's resource needs (in particular energy/water) and housing problems, one stands in front of a dominant theme (the social makeover in communications and networking), and the last is a macro play representing a mean-regression in one of the most overvalued asset classes (U.S. bonds).
- Resources (energy and water): The world is moving east. Rising demand, stemming from the continued industrialization in the developing world and the emergence of a middle class, places pressure on the supply of all resources. Besides energy (where there are plenty of candidates), I would look at the water sector -- PowerShares Water Resources Portfolio (PHO) and Guggenheim S&P Global Water Index ETF (CGW) are two ETFs that can give investors representation in an emerging imbalance between demand and supply for this important resource.
- Housing: The companies that stand best-positioned to find the solution to the massive overhang and shadow inventory of unsold homes will prosper mightily -- that is, those that maintain, remediate and bring to market for sale foreclosed properties. Anti-housing plays are in a growth area, with a long runway that will only get better in the years ahead. The only company I have been able to identify thus far is Altisource Portfolio Solutions (ASPS). As can you see from the chart, Altisource has been among the best-performing stocks extant.
I originally mentioned this company in a Barron's interview at $13 a share; it's now at $37 a share. Because of the company's relationship with Ocwen Financial (OCN) -- it was spun out of Ocwen -- Altisource is uniquely positioned and has an insurmountable market lead against others that want to enter the field, as Ocwen has been on an acquisition binge. After the close on Monday, Ocwen announced its acquisition of Morgan Stanley's (MS) mortgage servicer, Saxon ($26.8 billion in assets).
- Social communications/networking: There will likely be a new company, similar to Facebook, or a company that sells unique devices, similar to Apple (AAPL), that changes the world. I have no clue what company it might be, nor does anyone else right now.
- Shorting U.S. bonds: The U.S. economy will ultimately come out of the current doldrums, and when it does, considering the latent demand that could be unleashed in durable and nondurable areas and for general spending, interest rates will spike -- maybe hard.
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