A professional investor tells MoneyWeek where he’d put his money now. This week: James Thomson, investment manager, Rathbone Global Opportunities
Rathbone Global Opportunities is a specialist stockpicking fund holding 50 to 60 stocks. I do not invest in blue chips or household names, but try to unearth hidden gems. I look for pure-play businesses, innovation and that oft-used phrase ‘secular growth’; in other words, a stock that can survive a variety of economic scenarios and is doing something a little different. The past six months have proved tricky for these types of stocks, mostly because investors are becoming more averse to risk. The falling dollar has also provided a headwind. But the third-quarter reporting season is always a telling time, when talk becomes news rather than market noise, and once again our holdings have delivered.
I have been following the uranium space for the last 18 months, but the story is only just entering a sweet spot. There’s simply not enough supply to cover demand and this is pushing up the uranium price sharply. About 100 million pounds of demand is expected this year, rising to 190 million pounds by 2020. Producers are confident the price may climb as high as $100 per pound in the short term and are holding back inventory. Further supply concerns arose when the world’s largest producer announced significant delays to new projects back in October. Companies operating in this space have gained strongly on the news. Paladin Resources (PDN, listed in Australia), a stock we bought in March, has risen 60% since then. I’ll wait for a pull-back before topping up my holding, but the supply/demand imbalance suggests it will outperform in the long term.
Precision Castparts (NYSE:PCP) makes complex and highly specialised metal components that form key parts in jet aircraft engines, gas turbines, cars and industrial machinery. Orders for new aircraft from the world’s largest airlines continue to grow, and Precision will benefit. Analysts expect compound revenue growth of at least 20% between 2005 and 2009, and improving margins as Precision benefits from economies of scale. The group has an excellent track record of value-enhancing acquisitions in the specialist materials sector. Superb management and rising returns justify the higher valuation.
Homeland security play American Science & Engineering (NASDAQ:ASEI) specialises in ‘Backscatter’ systems, which have higher resolution than traditional X-rays and are safer. The scanners can uncover hidden weapons, explosives and people-smuggling operations. Orders are unpredictable from quarter to quarter, but I believe governments worldwide will employ improved security detection technology. The Transportation Security Administration is piloting its screening system at a US international airport that has been fitted with privacy software to spare passengers their blushes. Over this year, the group has seen additional orders from the Middle East, South America and Nato.
US-listed The9 (NASDAQ:NCTY) is an online game operator that has licensed several role-playing games in China. It provides one of the most popular web games, World of Warcraft. At any one time, an average of 280,000 people are playing for three- to four-hour stretches, and there are nearly six million paid accounts in operation. The game isn’t mainstream, but its popularity, particularly in Asia, is growing as expansion packs are released. The risk is that The9 is heavily reliant on a single game; however in 2007, several new games will be launched to diversify the offering.
The stocks James Thomson likes
12mth high 12mth low Now
Paladin Resources A$7.45 A$1.67 A$7.21
Precision Castparts US$77.74 US$48.80 US$76.99
American Science US$93.86 US$36.03 US$66.23
The9 US$31.94 US$15.00 US$29.75