By Rachel Koning Beals
Bank of America stock selections target chip bottlenecks, a circular economy, fertility, food advancements and more -- adding up to an $8 trillion market cap
The global population more than doubled in the second half of the 20th century. Over the same stretch, food production grew three times, energy consumption surged four times and overall, economic activity expanded by five times the output of the first half of the 1900s.
By Bank of America's calculation, it all simply means that human beings have been living beyond their means. And it's fair to assume that the species, left unchecked, will continue to do so.
The stock research arm of the mega bank (BAC) believes that "a transforming world needs transformative solutions and not just continue to grow, mine or produce more."
In a note released Thursday, the team served up a handful of themes and 50 stock ideas to embrace "scarcity." The combined value? Some $8 trillion in market capitalization.
"Today, less than 1% of the planet's water is fit for human use and we could run out of freshwater by 2040. Key metals like lithium and nickel could reach structural deficit as soon as 2024 and we could reach peak phosphorus by 2030, which would exacerbate food scarcity," the research team says. "We are also facing scarcity of human capital and technology" as grandparents greatly outnumber grandchildren in the census results.
They said that technological solutions, a circular economy and revaluing natural capital are some of the solutions at their tipping points that can help solve the problem. The circular economy, for instance, looks to promote sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products as long as possible, and will need the service sector and large consumer conglomerates to step up.
Investing topics might range from climate-change initiatives to innovative health care, to addressing top-heavy age demographics, and both new and already familiar technology issues, including the chip shortages that contributed to supply chain bottlenecks and empty shelves post-COVID 19.
Read:Here's the tiny percentage of plastic that's recycled despite single-use bans, taxes and incentives
Water and food
Think water issues aren't for the developed world? Think again, BofA warns. Some 15% of the U.S. fresh water supply is lost simply because of leaking pipes. It's unneccessary waste than only adds to the long-run cost of a disposable economy.
That means fresh water scarcity is a global issue.
Stocks tagged: France's Veolia , a water and waste management company that's over 150 years old; U.S.-based water utility Essential Utilities (WTRG); Hong Kong-listed Beijing Enterprises Water , which specializes in water treatment; Guangdong Investment , a holding company with interests in water, infrastructure and real estate; and Brazilian water treatment company SABESP (SBSP3.BR).
Some of Bank of America's concerns aren't particularly far out on the timeline. The globe could reach peak phosphorus by 2030, a major plant and soil condition factor, which would exacerbate food scarcity, the researchers say. They target two stocks in particular, Russia's PhosAgro and Mosaic (MOS), the largest U.S. producer of potash and phosphate fertilizer.
And two additional names focus on animal health, part of advanced farming and a means to keep up protein supplies to a growing global population. They are: Zoetis (ZTS) and Elanco (ELAN).
Humans will need to power 1 trillion connected devices by 2035, but face a structural shortage in semiconductor chips. It's a theme already resonating with investors.
To meet demand for processing power, the BofA note calls out: ASML (ASML.AE); KLA Corp. (KLAC); GlobalFoundries (GFS); and TSMC (2330.TW) . Related stocks that stand to gain from these developments: Japan-based Shin Etsu Chemical for semiconductor silicon and SUMCO and GlobalWafers , for silicon wafers.
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Metals and rare earth minerals
Something to think about: If you live in the West, you use 57 kilograms of newly mined minerals every day. Since 1970, global resource extraction has more than tripled, key metals like lithium and nickel (for stainless steel) could reach structural deficit as soon as 2024, just a few short years from now.
Also something to think about: Lithium-ion batteries are key to the projected electric vehicle growth that features prominantly in the U.S. effort to flip to net-zero emissions by 2050, and halving emissions by 2030.
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One rare earth stock under watch: Australia's Lynas
As for lithium: China's Ganfeng is only an over-the-counter stock offering in the U.S. But it is the world's top lithium company by market cap and has already supplied battery-grade lithium to EV producers including Tesla (TSLA). Another pick: Canada's Sigma .
Read: Biden to bolster mineral supply chain for phones, EVs and wind power to help end foreign reliance
Climate change, a circular economy and natural capital
The circular economy, one focused heavily on reuse, could be key to reducing supply chain bottlenecks when it comes to tech and batteries. Shockingly, or perhaps not, 99% of everything we harvest, mine or process is trashed (eaten to survive, sure) in six months, Bank of America asserts.
And even the well-intentioned recycling push doesn't quite deliver on its promise. The Organization for Economic Cooperation and Development this week issued a report saying only 9% of all plastic is recycled, despite taxing and incentives. The number for second-round recycling is below 1%.
Perhaps the newest theme to "green" investing focuses on nature itself, prompting the BofA group to drill down on geoengineering, forest carbon sequestration, clean air pollution technology and ocean aquaculture to save at-risk fishing populations, all as a means to stem biodiversity loss. The blurred line between nature and humans isn't just fodder for National Geographic -- it's raised serious concerns about origins and early spread of COVID-19, for instance.
Here are the stocks under watch (with tickers provided when they are widely traded):
Biodiversity: SCA, Europe's largest private forest holding; Russia-based Segezha; Weyerhaeuser (WY): Clean air: Japanese air conditioning giant Daikin, Carrier (CARR); Oceans and aquaculture: OTC-listed Atlantic Sapphire; Waste disposal and management: Waste Connections (WCN.T); Cleanaway , Ambipar; Befesa ; Origin Materials (ORGN); Circular economy and recycling; Sims.
Read:Every whale is worth $2 million? Why it's time to add the value of nature to GDP
And: Better than recycling? These manufacturers are taking part in a 'circular economy'
Youth and fertility
Yes, it's great that we outlive, for the most part, past generations that were struck down by disease. But birth rates in the U.S. and China are the lowest on record. Many people are putting off child rearing, some forever. And family sizes are down in most of the industralized world. Low population numbers for young people is exacerbated by an ageing population that greatly underserves the workforce and requires expensive care for longer lives.
Fertility is a tricky subject both for its emotional toll and because it's debatable how much technology might trump rolling the dice with Mother Nature.
Still, it's a topic Bank of America considers part of its scarcity exploration and with that comes two stock picks focused on ferttility health: specialty insurer Progyny (PGNY) and China's fertility services firm Jinxin.
Health and wellness
Most people currently spend about eight years of their lives being ill, yet only about 3% of global healthcare spending goes towards preventing diseases, only coming in at the treatment phase.
The BofA picks under this category range from wellness and fitness stocks Xponential Fitness (XPOF) and Life Time (LTH) to medical staffing resource AMN Healthcare (AMN), tech-meets-care offering Teladoc (TDOC) and Thorne Healthtech (THRN).
Education and job skills
A 2020 Chamber of Commerce study showed that 74% of hiring managers agree that there is a skills gap in the current labor market, with 48% saying that candidates lack the skills needed to fill open jobs. Debate has since centered on what kind of compensation and flexibility hiring firms are willing to offer in a tight market, as well as on-the-job training to help fill empty spots.
Regardless, the Bank of America researchers see it as an issue not soon to disappear. Skills scarcity costs the global economy more than the GDP of Germany and Japan combined, they say.
The solution may lie with these companies, although for-profit colleges have had their own share of scrutiny in recent years: online course provider Udemy; language app Duolingo, Australia-based job-search firm APM Human Services ; digital and print textbook publisher Chegg (CHGG); and K-12 software provider PowerSchool.
Time and efficiency
By 2025, we will interact with a connected device every 18 seconds, and by 2030 we will spend more time in the metaverse, a network of 3D virtual worlds focused on social connection and communication, than the real world -- a digital second life, some have said.
Do we have enough time? Bank of America asks.
-Rachel Koning Beals
(END) Dow Jones Newswires
February 26, 2022 14:01 ET (19:01 GMT)
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