At the end of June, investment giant BlackRock (NYSE:BLK) released a mid-year outlook report. A hallmark of the company’s diligent research, these reports highlight key areas that the BlackRock team sees impacting global investors for months and years to come.
BlackRock’s “big picture” takeaway included an outlook contrary to much of today’s return to market exuberance. Specifically, the research team noted their belief that inflation will remain elevated despite central banking’s best attempts. While the firm believes that inflation will remain high due to supply chain issues, they also assert that central banks will keep rates high. This could quickly put a pin in the broad market valuations ballooning over the past month.
Beyond inflation, BlackRock identified five “mega forces” at play in the markets today. While these mega forces will have long-term effects and impacts, BlackRock says these represent investment opportunities today for savvy investors. While the team doesn’t make specific stock recommendations, these are their five mega forces and my stock picks.
Digital Disruption & AI: Palantir Technologies (PLTR)
Artificial intelligence and digital disruption remain high on investors’ radars. Because of the global focus, it’s little wonder that BlackRock chose this as their first mega force. BlackRock highlighted broad benefits to companies, like productivity boosts. They also specifically identified opportunities for firms with “vast sets of proprietary data have the ability to more quickly and easily leverage a large amount of data to create innovative models.”
This quote describes, almost perfectly, what Palantir Technologies (NYSE:PLTR) has been doing long before the AI craze kicked off. A leader in bringing together diverse data sets to create actionable insights, Palantir is perfect for investors interested in capturing the growing AI market. Furthermore, with a broad government and corporate contracts base, Palantir is becoming increasingly “sticky” in client workflows. This could ensure Palantir’s longevity. Further contracts could snowball as they renew and expand based on continued success.
Fragmenting World: Whirlpool (WHR)
While geopolitical conflict certainly remains top-of-mind, BlackRock’s “fragmenting world” thesis centers on a need for companies to hunker down and rely less on global supply chains and manufacturing. The report states they “see a world where national security and resilience are favored over efficiency.”
Due in large part to the pandemic revealing what happens when firms over-rely on overseas manufacturing to bring down costs, the report indicates that the future may become less globalized. This means that firms must be prepared to face higher business costs for greater stability.
Whirlpool (NYSE:WHR) saw the writing on the wall last year when CEO Marc Bitzer asserted the firm’s “diminishing advantage from having a global scale [but] sees more benefits from having strength in specific countries and regions.” Pivoting to a more centralized business model, Whirlpool is transitioning to a narrower focus today. But they won’t be the last firm to do so, and if BlackRock’s assessment is accurate, those that don’t may see significant disruption in years to come.
Low-Carbon Transition: Livent Corp (LTHM)
Unsurprisingly, low-carbon transition is another one of BlackRock’s mega forces. The company sees “a massive reallocation of capital as energy systems are rewired.” Since much of the industry is new and growing, pinpointing what companies will eventually come out ahead is difficult.
What’s more apparent, however, is that demand for raw materials supporting a low-carbon transition will only increase from here. To that end, Livent Corp (NYSE:LTHM) best fits with an unpredictable but nearly-guaranteed sea change in global energy markets. A lithium producer that provides materials for nearly all-electric vehicle firms today, Livent is a major player unlikely to be unseated from its position.
Among other mega force stock picks, Livent is also unique from a valuation perspective. Running a 12.47 forward P/E, Livent seems undervalued today compared to the influence it may have on future energy markets.
Aging Populations: CareTrust REIT (CTRE)
BlackRock assesses developed market populations as a significant factor in coming years – specifically, how rapidly total populations are aging. Other research backs this point, as one study noted that, by 2050, “the proportion of the world’s population over 60 years will nearly double.”
An aging population has many economic implications, as BlackRock notes, but a major force for the future is healthcare and healthcare management. To that end, CareTrust REIT (NYSE:CTRE) may be an ideal investment to capture opportunity as the national population ages. CareTrust properties include nursing homes, senior housing, and similar healthcare facilities.
CareTrust is also a perfect pick for investors interested in diversifying their portfolios. REITs offer exposure to real estate otherwise unavailable to average investors. The company’s dividend is also substantial. Over the past twelve months, the firm yielded 5.6%. This payout makes it competitive among income investment options even as rates rise.
Future of Finance: KKR & Co (KKR)
Everyone’s witnessed the changing face of finance amid developments in digitization, so it’s little wonder that BlackRock included this as one of their mega forces. What’s notable is that BlackRock identified tightening capital concerns that increase the hurdle for potential borrowers. BlackRock assesses non-bank and private lending as major influences in future financial markets.
Private credit and lending, an alternative investment strategy, is mainly off-limits for average investors. Traders interested in grabbing a piece of private credit must get creative, and KKR & Co (NYSE:KKR) offers that opportunity. KKR is one of the world’s largest alternative asset management firms and held $510 billion in managed assets at the end of March.
More relevant to this mega force, though, is KKR’s growing emphasis on private credit markets. In fact, in 2022, KKR released a report that assessed private credit as having a pivotal role in traditional portfolio management. In the report, KKR said that savvy investors should consider a 10% allocation to the asset class instead of traditional fixed-income securities like bonds. Beyond simply recommending private credit as an asset class, KKR is also putting its money where its mouth is, having recently bought up $44 billion in buy-now/pay-later loans across European markets.
While investment in KKR isn’t a private credit pure play, the company’s diverse array of alternative assets, including private lending, is a quality alternative for average investors.
On the date of publication, Jeremy Flint held a long position in PLTR. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
