Our fund follows a high-conviction stockpicking strategy, investing in growth stocks with star quality that are unrecognised by the market. These are pure-play, creative businesses that consistently beat hopes, outclass competitors and serve a fast-growing market. The fund has no country weightings and asset allocation is dictated by stock selection. I believe market noise should be snubbed in favour of long-term fundamentals – so with headlines full of mergers and acquisitions, I’m resisting the temptation to chase investments purely on bid potential, although the portfolio has benefited this.
Recent addition Sevan Marine (SEVAN.OL) is still performing impressively. It has designed a new floating oil-storage and production vessel for offshore oil and gas firms. One of its first, Sevan Piranema, has been secured by Petrobas and is to go into production in Brazil – a major milestone. Five other units have been contracted, with two extra hulls ordered. This gives an order backlog of $2.3bn. Interest remains strong, with more than 15 prospects being evaluated. Sevan’s products are ideal for stranded offshore oil fields, and can be used in all depths and weather conditions. Along with cheaper operational costs and a faster time to production, Sevan is starting to make waves.
We bought Geox (GEO.MI) in November 2006, on strong fundamentals coupled with a reasonable valuation. The company makes ‘breathable’ shoes aimed at the teenage market, and is transferring success in its native Italy to the rest of Europe. Last year, total sales were up 35% year-on-year, nearly half of which was from Europe (ex-Italy). In April, the group reiterated its upbeat outlook for 2007 and a rise in the order backlog for the spring/summer period. Since coming to market, the stock has risen 30%. But with individual country sales outside Italy still fairly small, I believe there is plenty of upside potential.
Like many, I’m cautious on consumer electronics; however, I have found areas of growth that can circumvent macro fears and pricing pressure. I bought into US-based Dolby (DLB), best-known for its surround-sound technology, in December 2005, expecting it to benefit from the revolution in higher quality TV and PCs. Since then, the company has issued several confident trading statements. Most recently, it reported full-year sales growth of 23%. Its licensing revenue rose 28% year on year, driven by HDTV digital set-top boxes and multimedia PCs. Dolby also saw a positive impact from European TV sales as well as sales of Windows Vista Premium for consumers. So far, the group has avoided the rampant price deflation typical of this market and is proving that high margins are sustainable.
Foster Wheeler (FLW2.BE) is an international engineering, construction and project management contractor, and power equipment supplier. We bought it in August 2005, long after it had recovered from near-bankruptcy in the 1990s due to poor management, high debt levels and a lack of pricing power. Recently, the group saw first-quarter operating revenues rise 65%, and new orders gain 29% to $1.07bn. The shares have surged some 25% in the past three months. Rising living standards and a consumption boom are straining industrial markets, infrastructure and basic manufacturing. Capital-spending budgets to build new power stations, chemical plants, and oil and gas processing facilities should continue to grow for many years.
The growth stocks James Thomson likes
12mth high 12mth low Now
Sevan Marine NOK57.25 NOK30.40 NOK51.25
Geox e14.42 e8.27 e13.10
Dolby $39.70 $17.83 $34.69
Foster Wheeler e67.01 e26.70 e65.20