RBC: 7 Structural Themes Long-Term Investors Must Take Seriously

Sam Ro
myles zyblock rbc strategistMyles Zyblock

Photo: Bloomberg.com

Investors have lot to think about these days as the media constantly bombards them with headlines.Much of these issues tend to be on matters that are generally short-term in nature.

But investors really should keep the long-term picture in mind as well, if not more so.

In a recent volume of his U.S. Equity Strategy Weekly report, Myles Zyblock identified seven structural (ie multi-year) trends and ideas.

“[I]t’s critically important for investors to differentiate between cyclical and trend strategies, as these operate on substantially different horizons,” wrote Zyblock, Chief Institutional Strategist for RBC Capital Markets.

P/E ratios will trend lower due to demographics

'P/E compression, which began in 2000, is not over: Demographic trends, those being the decline in peak- versus early-earnings cohorts, argue for another five years of multiple compression before the bottom sets in.'

Source: RBC Capital Markets

Throw out the Fed model: The relationship between stocks relative to bonds will break down.

'It is too early to fear a rise in interest rates: An increase in 10-year Treasury yields, assuming it is not being driven by an escalation in sovereign risk, is empirically consistent with higher multiples up until the point that yields surpass 5%.'

Source: RBC Capital Markets

The S&P 500 will lead the way

The next phase for Tech seems like a positive re-rating

'Stay long the innovators: Tech sector leadership, which started in late 2006, is in its middle innings with the next phase likely to be characterised by strong fundamental delivery and relative P/E expansion.'

Source: RBC Capital Markets

A challenging outlook for the Consumer Discretionary due to already high profit margins

'A troubling outlook for Consumer Discretionary: Today's incredibly high margins foreshadow a very challenging 3--5 year earnings growth profile for the sector.'

Source: RBC Capital Markets

The merits of dividend paying stocks are high

'Income provides a high-odds path to long-term success: Dividend investing is among the most robust risk-adjusted long-term leadership ideas we have ever uncovered.'

Source: RBC Capital Markets

Large cap stocks will be much more attractive than small cap stocks

'Shift some money into large caps: Small caps are expensive, embed extremely optimistic forward earnings expectations, and are at greater risk of potential capital gains tax rate increases in 2013.'

Source: RBC Capital Markets

Now, here are some stock picks

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