America: The Next Growth Economy
Tom Winner, On Thursday March 4, 2010, 4:37 pm EST
Warren Buffett described Berkshire Hathaway's (NYSE: BRK-A - News; NYSE:BRK-B - News) acquisition of Burlington National Railroad as a long-term bet on the American economy. In his book The Next Hundred Million: America in 2050, author Joel Kotkin presents data that supports Buffett's thesis, arguing that despite its current economic woes, the U.S. will remain an economic powerhouse over the next four decades.
Kotkin's claim rests upon the demographic boom going on in our own backyard. The U.S. population is expected to grow by 100 million by 2050. This growth makes America an outlier; during this time, America's economic peers will suffer from low birth rates and stagnant population growth. By 2050, a third or more of the populations in Europe and East Asia will be over the age of 65, compared with only a fifth in the U.S.
This means that the U.S. will face a unique set of challenges come middle-century. While its peers struggle with rapidly aging populations and potential labor shortages, the U.S. will need to provide its younger populace with ample economic opportunities. Kotkin theorizes that America's entrepreneurial bent, willingness to embrace creative destruction, and openness to immigration will all work to meet this need. The result will be a population that is younger, more diverse, and more dynamic than most other nations -- and a vibrant economy.
Whether or not you agree with this rosy scenario, investors with a truly long-term horizon will want to ask themselves what companies might benefit from America's coming demographic dividend. That's a tough question; much will change by 2050, just as many companies and technologies came and went in the last forty years. But it puts Buffett's railroad purchase in perspective. Railroads are as vital to U.S. commerce today as they were in 1970, and should benefit greatly during Kotkin's predicted 40-year population expansion. Even better, they have inherent moats.
Following Buffett's thinking -- steady infrastructure plays with built-in moats -- leads to companies not often associated with growth, like utilities. ConEd (NYSE: ED - News) and Southern Company (NYSE: SO - News) are conservative plays with a protected business and excellent dividends. California Water Service Group (NYSE: CWT - News) and Mueller Water (NYSE: MWA - News) will also grow with increasing populations. Obviously, investors shouldn't build their portfolios around utilities alone, but even these sleepy stocks may appreciate nicely if Kotkin's thesis plays out.