Each week, a professional investor tells MoneyWeek where she’d put her money now. This week: Katrina Norris, director at JO Hambro Investment Management.
Over the last few months equity markets have been haunted by the return of significant risk-aversion, along with a commensurate increase in volatility. Risk assets have underperformed as investors have become increasingly concerned about the risks of forthcoming monetary and fiscal tightening, and the threat of potential sovereign defaults in Europe. Weak economic data in China and the US have aggravated worries about the pace of the global economic recovery.
With the storm clouds continuing to gather overhead, we’re focusing more than ever on the ‘best in class’ names on a worldwide basis. We believe these quality multinationals will continue to improve their competitive position and perform strongly relative to their peer group.
Our preference is for firms generating growth, be it defensive or secular. We also like those with above-average exposure to emerging markets.
Unilever (LSE: ULVR) is one of our favourite defensive growth stocks. Following the arrival of its new CEO, Paul Polman, in January 2009, it’s been gaining market shares across its portfolio, with over two-thirds of its core categories maintaining or gaining share around the world. With a revitalised management team galvanised by tougher benchmarking and greater accountability, the group has turned its attention onto volume growth driven by stronger innovation. With 50% of its total revenues being generated in emerging markets, it’s well positioned to take advantage of the faster growth offered by these regions. In this environment of uncertainty, financial strength is paramount and Unilever has a strong balance sheet and cash flow as well as a steadily growing dividend.
In the technology sector, we are excited about the prospects for ‘cloud computing’. The ‘cloud’ allows resources, software and information to be provided to computers and other devises on-demand via the internet. Concur Technologies (Nasdaq: CNQR), an on-demand software provider of corporate expense management, is a beneficiary of this technology. After payroll costs, travel and expense management (TEM) is typically a company’s second most controllable cost. This market is still nascent – the majority of it is managed with spreadsheets or paper – so there is significant growth potential for TEM solutions. As the pioneer in the field, with a renewal rate of more than 97% and an expanding customer base, we think Concur can leverage its leading product offering and continue to drive growth.
Recent wage hikes in China could trigger a new wave of investment in automation equipment in the region. It’s estimated that a 30% increase in salaries in China would reduce the payback period for computer numerical control (CNC) machine tools versus manual machining from four years to three. Fanuc (Stuttgart: FUC), the Japanese manufacturer of factory automation systems and robots, is well positioned to exploit this investment wave.
Fanuc has leading edge technologies in robotics, motors and controllers and is the de facto world standard for CNC equipment, commanding a 50% market share. And it’s the leading supplier of CNC systems in China, with an estimated 45% share of the market. Not only does the firm have a strong product offering, but it also boasts superior profit margins and a solid net cash position.