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Pimco: Growth and Rising Stars


Pimco sees these "rising star" companies in the US and European auto sector, the gaming, energy and chemical industries, and in sectors tied to the US housing market.


The Asian gaming industry remains an attractive area to invest in given strong secular growth prospects. In Macau, the market should continue to benefit from increased visitation from mainland China as well as significant infrastructure investment. Overall, the Macau gaming market has grown from roughly $6 billion in annual revenues in 2005 to approximately $41 billion today (see Figure 5).

We believe Macau offers investors an attractive way to invest in the growth of the Chinese consumer. Despite exceptional growth over the past 4½ years, the Chinese government is making significant infrastructure investments to improve access to Macau from major cities throughout China. These investments include new bridges, ports, high-speed rail, highway expansions and visitation facilities, which will all help to expand visitation. Several new casino properties are being developed in the emerging Cotai area of Macau, referred to as the Las Vegas Strip of China, to serve growing demand.

We believe a rising middle-class Chinese consumer will lead to significant and sustainable double-digit growth in the mass market in Macau. We similarly believe that growing wealth throughout Asia, combined with improving infrastructure, will lead to increasing demand from Asian consumers for both Macau and Singapore gaming.

Pimco is invested in several gaming companies with a significant presence in Asia, and we remain constructive on the industry. We believe that the above-trend growth will continue for many companies in the sector, leading to ratings upgrades for bond investors.

Energy and chemicals

Pimco has been focused on the U.S. energy revolution for years. As we described in our March 2012 Global Credit Perspectives, "Game Changer," we see significant opportunities to invest in energy companies that offer superior growth profiles.

U.S. crude oil production is now growing at 15% or more annually, the fastest growth rate in over 40 years (see Figure 6). This growth rate is the catalyst for further credit ratings upgrades for companies in the exploration and production (E&P), gathering and processing, oil field service and pipeline sectors.

Our investments in the U.S. energy market have focused on specific companies that stand to benefit most from growth in the emerging oil and gas shale regions across the U.S., particularly in the shale regions in the Bakken, Marcellus and Eagle Ford areas, as well as in the Permian Basin. We also favor select petrochemical companies that have the operational flexibility to capitalize on America's natural gas feedstock advantage by substituting their raw material inputs from crude oil to gas.
We continue to find numerous opportunities across the broad energy and chemicals sector and believe above-trend growth is likely, particularly for the many companies we have identified through our bottom-up research.
No positions in stocks mentioned.
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