3 investing themes and 10 stocks for 2014

Looking at the general market conditions in 2014 will give the best insight to what industries can benefit the most. Low interest rates are probably the first and foremost condition to factor as debt pricing will flow from it. With the RBA more concerned about kick-starting the economy to offset the winding back of the mining industry, businesses and consumers will have a hot-house environment in which to invest and spend.

Low interest rates usually start the next business cycle, so investors can prepare by taking positions in retailers like Harvey Norman (ASX: HVN), JB Hi-Fi (ASX: JBH) or smaller companies such as Nick Scali (ASX: NCK). All sell household items and electronics that buyers will pick up with more disposable income.

Low rates also spur on housing and building material companies like Boral (ASX: BLD) and James Hardie (ASX: JHX). They will be supplying both the Australian and US markets with their products and taking advantage of the improvement in both markets. Even Iluka Resources (ASX: ILU) could see more revenue in its zircon materials production, since it is used in making paint, which will be needed with more new home construction.

Another market condition is a weakening Aussie dollar. Getting back below $0.90 cents versus the US dollar will stimulate more exports and give advantage to US dollar sensitive companies with overseas business. Many international mining companies have a lot of their business denominated in US dollars, so a stronger US dollar can mean extra earnings for BHP Billiton (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX:FMG).

All three have benefitted from the recent rise in iron ore prices, but that can be fleeting if too much supply doesn’t match up with higher demand. So of the three BHP Billiton is the most diversified miner and less susceptible to setbacks in this respect.

More business in an improving economy will need more goods shipped, so logistics and shipping giant Toll Holdings (ASX: TOL) stands to gain from higher transport volumes. Higher discretionary spending by consumers will help both retailers and transport companies which supply them.

Foolish takeaway

We’re in the early stages of an economic recovery and the world economy in general is brightening. The opportunities are there. The companies with the best balance sheets and strongest platforms to spring from will perform best.

Prepare for the future

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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