Performance of US vs world stocks in 2014
Source: FE Analytics
The real estate services sector is a good example. It features two globally dominant and well managed companies, CBRE Group and Jones Lang LaSalle.
We believe both are well positioned to be strong beneficiaries of a pick-up in commercial property transactions as they receive fees for executing sales for clients, managing properties and projects, arranging financing and research and consulting. With economic activity on an upswing in the US and potentially recovering in Europe, these companies could deliver surprisingly strong earnings gains this year.
A smaller and less well known company but with equally exciting prospects is Marcus and Millichap, the largest provider of commercial real estate services to small businesses.
Some investors may prefer this name because it has relatively little overseas exposure and the company focuses on broking smaller transactions where competition is limited.
As business activity in the US picks up, we could see declining office vacancies and increasing demand for Marcus and Millichap’s services. In addition, the stock is only covered by two research houses following its recent IPO.
A number of companies in the medical technology sector could also exceed analysts’ forecasts over the coming years.
Once President Obama’s healthcare reforms are fully implemented, a vast number of people who were unable to get treatment for longstanding health issues will suddenly become eligible.
Companies such as LDR Holding Corp, another recent IPO, look well positioned to capitalise. LDR is one of the fastest growing companies in its sector as a result of strong demand for its revolutionary orthopaedic products.
The products are highly innovative because they rely less on plates and screws which can complicate procedures.
They were developed after seven years of research and investment, giving the company a significant competitive lead.
Surgeons and hospitals are likely to switch to LDR’s technology because patients recover more quickly from the operations, resulting in shorter periods of hospitalisation and improved outcomes.
Elsewhere, there are a vast number of innovative and underfollowed companies included in the Russell 3000 index that could do well this year.
Many provide essential and valuable services to customers who are happy to sign long-term contracts because what they offer is so important.
RigNet is a typical example. It is the leading provider of communications services to the oil and gas industry.
As rigs are put to work in more remote locations, requiring constant communications links with onshore facilities and personnel, demand for the company’s superior data transfer and communications services is increasing.
A high percentage of RigNet’s sales come from subscriptions as customers effectively “rent” access to the company’s communications network.
Customers generally lack the expertise to design, install and manage these services in-house and prefer to outsource to specialists.
RigNet should be able to extend its services in areas such as general maritime, mining, engineering and construction and the military.
Nick Ford is the manager of the CF Miton US Opportunities fund. The views expressed here are his own.
