It is estimated that in 2014, as many as 30 million new people will be able to purchase private insurance on the federal or state regulated exchanges. With a current population of about 317 million people living in the US, this represents a nearly 10% increase relative to the current population. While cost savings will surely be wrung out of the system, we expect that a significant portion of this additional 10% will show up as additional earnings and profits by many of the companies represented by the health care industry, including hospitals, large pharmaceutical, and biotech companies. And while the sickest segment of the population will continue to be heavily burdened with high medical costs, it is advisable especially for this segment to overweight their portfolios with health care stocks over the next 2 years so that the costs incurred can be at least partially offset by gains made by the health care companies.
Interest remains keen in natural gas production from shale reserves in the US. In fact, as the map above shows (red areas), North America has more assessed basins of shale oil than any other region of the world, leading some to believe that future shale oil and gas production and exports will lead the US to economic prosperity.
As we reported in 2012,” lower natural gas prices are creating a structural economic advantage for the US, and is becoming a new competitive strength for U.S. manufacturers. Companies who purchase energy in Asia pay up to six times as much for natural gas as their counterparts in Texas and Louisiana. Significantly, low U.S. natural gas prices should encourage an expansion in U.S. natural gas exports, especially once LNG terminals go online starting in 2014 and 2015.”
With the cost of natural gas remaining at a historically very low level, the process of exporting compressed natural gas is becoming a reality. For example, in May, 2013 the Obama administration approved a $10 billion facility in Freeport, Texas, previously a second facility was approved at Sabine Pass in Louisiana, and a third facility recently obtained conditional approval (Dominion Resources) at Cove Point, Maryland. Exports are expected to begin in 2017 and 2015 respectively for the approved facilities. In all, another 18 applications to export gas are being reviewed, indicating that this new business promises to be a very significant growth driver of the US economy. Indicative of the magnitude of this industry, the approved facilities are each expected to export at least about a billion cubic feet of liquefied natural gas per day.
An example of a high quality equity which we have recently added to our portfolio is as follows:
CBRE Group (CBG)
CBG is a play on the recovering US and Global real estate market. On Dec. 23, 2013, CBG announced that it has finished it’s $480 million acquisition of Norland, a best-in-class provider of technical engineering services for commercial buildings in the United Kingdom and Ireland. CBG is a well-managed company that has seen double digit revenue growth in the latest quarter, much better than competitors in the slowly improving global leasing market. This indicates that CBG is doing a good job choosing and managing growing properties, while leaving underperforming properties alone. We think CBG will continue to outperform the market over the next 12 months, CBG has thus far doubled the performance of the market since it entered the model portfolio on Dec. 18, 2013.