Every week, a professional investor tells MoneyWeek where he’d put his money now. This week: Steven Maxwell, head of European Equities at SWIP
With increased uncertainty around earnings forecasts and ongoing market volatility, good stockpicking will be vital in 2008. Here are three companies we favour now.
Greek group Fourlis (Athens:FRLK) is hardly a household name in the UK, but the brand it runs is: furniture chain IKEA. IKEA’s push for global dominance has seen the parent group focus resources on big markets directly, expanding into smaller regions through concessions.
A few years ago, the Fourlis family ran a small business distributing electrical goods into Greece, before winning the concession to build and run IKEA stores in Greece, Cyprus and Bulgaria. As IKEA itself is still effectively controlled by a charitable organisation, the Fourlis family’s business is the only listed means of investing in IKEA – possibly the strongest non-food retail format the world has ever known.
The strong Greek economy is another reason to invest. GDP growth has averaged 4% and unemployment fallen from 11% to 8% over the past four years. The recently re-elected Karamanlis government should continue its economic reforms, cutting both corporate and personal taxes, which should help strong consumption trends continue. Fourlis has so far opened two IKEA stores in Greece and one in Cyprus, winning impressive market share in both regions. With seven more to come, and the chance of winning more concessions in the Balkans, this story has far to go.
Another stock we like is Finnish lift maker Kone (HEX:KNE.B). Revenue growth for Kone will be driven by two main factors over the next five years. New European safety rules mean the market to replace or update antiquated lifts is thriving. Secondly, the group has good exposure to the Chinese and south Asian markets. Kone is also growing its share of the new lifts market due to technological excellence and cost-efficient production.
Over the long term, its business model will also be supported by a global network of technicians, who service and maintain the installed units, ensuring a steady stream of income. With strong management in place, we believe Kone will achieve double-digit revenue growth over the next five years. Its financial health is solid and we think it is extremely undervalued.
Finally, we like Barcelona-based Grifols (Madrid:GRF), which develops pharmaceutical products for human plasma. This is a fast-growing but highly regulated industry with little risk of new entrants. Grifols has invested heavily in extra capacity ahead of its rivals, which means it will be able to grow revenues and profits as the supply of plasma rises through the build-out of collection centres. Production yields will also be higher than its competitors because stringent regulation means capacity takes years to build. Pricing power going forward is also very strong as the demand for plasma derivatives grows ahead of supply.
Capitalised at around e3bn, the share price has suffered due to the recent sell-off in Spanish equities, where worries over the economy and upcoming elections dominated market sentiment. The lack of risk appetite pervading the market has hurt mid-cap stocks, and Grifols in particular. But in a fragile economic and market environment, a growth stock such as Grifols will see investors attach a genuine premium to the quality and stability of its earnings.
The stocks Steven Maxwell likes
| Stock | 12mth high | 12mth low | Now |
| Fourlis | e28.18, | e15.54 | e21.00 |
| Kone | e59.80 | e37.53 | e48.41 |
| Grifols | e18.70, | e10.56 | e15.85 |