Urbanization stocks are a cohort of stocks I haven’t spent much time thinking about in recent years. However, I am concerned about climate change, so I think it’s time I start paying closer attention.
BlackRock was talking about rapid urbanization as far back as 2019, one of five megatrends expected to shape the future of the global economy.
“Of these five fundamental forces shaping the future of society, rapid urbanization will likely have the biggest effect on how and where humans live, creating a myriad of investment opportunities in the process,” BlackRock stated.
It pointed out that in 1900, 40% of the U.S. population lived in cities. By 2016, that had more than doubled to 82%. I’m sure it’s higher today.
The World Bank’s Urban Development unit estimates that by 2050, more than two-thirds of the global population will live in cities. Further, approximately 80% of the global gross domestic product (GDP) is generated in cities.
As you walk about your city, open your eyes to the opportunities due to rapid urbanization. They’re all around.
Otis Worldwide (OTIS)
I get a daily email newsletter from a Toronto real estate developer. On Dec. 16, his blog post was about how many more people Toronto could house if its population density increased. He points out that if Toronto had the same population density as Paris, more than 13 million people would live there.
Although I’ve lived in Halifax since 2018, I spent most of my 59-odd years in Toronto, the last nine in Leaside, a neighbourhood that detested density of any kind. But I digress.
What I’m trying to say is that as cities grow and real estate goes more vertical rather than horizontal, elevators become vital to a building’s success. That’s Otis Worldwide’s (NYSE:OTIS) bread and butter.
The company’s tagline is “We give people freedom to connect and thrive in a taller, faster, smarter world.”
The thing is, it makes more money each quarter from servicing elevators and escalators than it does from the sale of new equipment. In Q3 2023, service revenue accounted for 59% of its overall revenue of $3.52 billion. Even better, its operating margin for service revenue was nearly 25%, more than 3x the margin for new sales.
And the last time I checked, you can say no to new equipment but can’t put off servicing. Well, not if you don’t want a lawsuit on your hands.
It’s the ideal business to benefit from city growth.
Getlink (GRPTY)
This last one isn’t so much about city growth as it is about city dwellers wanting to move around and easily explore other parts of the world.
Getlink (OTCMKTS:GRPTY) is the Paris-based company that owns Eurotunnel, the company that built the Chunnel, a 31-mile tunnel between Folkstone in the UK and Coquelles on the other side of the English Channel in France. It is the world’s third-longest railway tunnel.
Getlink has the concession rights to operate the Chunnel infrastructure until 2086. Since 1994, more than 481 million people and 99 million vehicles have traveled through the Chunnel.
The company makes money in several ways.
First, it generates revenue from LeShuttle, its service shuttling passenger and freight vehicles between the two countries, and fees paid by the Eurostar high-speed trains using the Chunnel. Secondly, it owns the Europorte rail freight company, which profitably moves freight around France. Lastly, the newest revenue generator is ElecLink, the 1,000-megawatt (MW) electricity interconnector, which allows for the movement of electricity between the two countries. It launched in May 2022.
In the first half of 2023, its Eurotunnel business generated 57% of its 934 million euros ($1.03 billion). ElecLink accounted for 35% and Europorte the remaining 8%. It generated 496 million euros ($547.3 million) before interest, taxes, depreciation and amortization (EBITDA), a high EBITDA margin of 53%.
The best part: GetLink does all of this in an environmentally-friendly way.
Uber Technologies (UBER)
No company speaks to city living more than Uber Technologies (NYSE:UBER). Between its ride-hailing business and Uber Eats, its drivers probably spend more time on city streets than anyone except for emergency services personnel and sanitation workers.
Bloomberg reported in September that the company was developing a service through the Uber app that allows users to order tasks to be completed with a minimum one-hour hire. The duties include appliance repair, cleaning, furniture assembly, and other potential household chores.
In October, it started a service to pick up packages that were being returned and to mail packages for customers for a flat fee of $5.
Uber is trying to become Amazon-like by providing as many services for city dwellers as possible, saving them time and aggravation.
The possibilities are limitless when you think about how much data and information it has about city dwellers worldwide. And it’s all driven around the Uber app.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
