Every week, a professional investor tells MoneyWeek where she’d put her money now. This week: Sophie Horsfall, manager of the Stewardship Income Fund
The volatility in financial markets provides a great opportunity for us to top up positions in firms where we like the long-term story. A good example is Japanese car maker Toyota Motor Corp (7203 JP), presently trading near its relative and absolute lows. Car manufacturers aren’t usually recommended by ethical managers, but Toyota is one of only two that pass our strict ethical screens.
With a large proportion of its sales in US dollars, it has been hit hard by concerns over the currency’s depreciation. It has also felt the strain of rising commodity prices. But we think the dollar is unlikely to weaken much further and believe in the firm’s long-term potential. Toyota is a world leader in hybrid car technology with its groundbreaking Prius, as well as a series of other hybrids launched under the Lexus brand. It has also secured a regular income from licensing out its hybrid electric technology to other manufacturers. Toyota now expects to sell more than one million hybrid vehicles a year. Certainly, in London sales of these cars are rising, with lower carbon-emission hybrid vehicles exempt from the congestion charge.
Another area where we see strong demand continuing is commodities, which I believe are largely immune to recent liquidity problems. Again, most of this sector is out of bounds to ethical investors. But there are exceptions, such as Japan’s Asahi Pretec (5855 JP), which recycles precious metals such as gold and platinum. Asahi operates in a very niche area, supported by rising demand for precious metals and rising commodity prices. The outlook for metal recycling in Japan remains good, with volumes rising sharply, particularly for indium used in LCD production. We think earnings forecasts for the firm look conservative in light of persistently high prices for precious metals.
Another name we like in this area is Arrow Energy (ASX:AOE). This mid-cap Australian company is involved in capturing methane gas from coal-mine seams and turning it into energy. Arrow uses groundbreaking technology and, like Asahi, operates in an area of the market where there are very few competitors. Despite having made a placing of 10% a few weeks ago, the firm’s performance has been very strong – testimony to the conviction behind its robust business model.
Elsewhere, we like Whole Foods Market (NASDAQ:WFMI), which has probably been our most contrarian holding over the past six months. After a very strong performance for several years, most of Wall Street has turned negative on the group, and the stock has fallen nearly 50% from its highs in 2005. This follows significant investment last year, which saw the roll-out of new and bigger stores (including a store in London) and has led to a fair amount of margin pressure short term. There has also been a lot of debate about increased competition in the organic and natural-food arena from other mainstream supermarkets. We believe the stock is now at attractive levels, trading at 15-year lows with earnings expectations ratcheted down overly aggressively. We have added consistently to our position this summer. After several meetings with management, we remain confident and believe this is a temporary reduction in margins, which should start to trend upwards again. The stock has performed strongly through the recent market rout, which demonstrates why we prefer to own firms for the longer term.
The stocks Sophie Horsfall likes
Stock, 12mth high, 12mth low, Now
Toyota Motor Corp, JP¥8,350, JP¥6,120, JP¥6,660
Asahi Pretec, JP¥3,970, JP¥2,185, JP¥3,280
Arrow Energy, A$3.17, A$0.59, A$2.49
Whole Foods Markets, $66.25, $36.00, $45.75