Each week, a professional investor tells MoneyWeek where he’d put his money now. This week: Ken Stuzin, manager of the Brown Advisory US Equity Growth Fund.
Our investment strategy focuses on buying 30 companies with superior and sustainable business models that can support high absolute growth rates over time. We also look beyond the more traditional growth industries, such as technology, to capture some of the less recognised growth potential in sectors such as industrials, energy and healthcare. Three stocks are of particular interest to us right now.
FMC Technologies (NYSE: FTI) is a global provider of technology for the energy industry. The company is a market leader among sub-sea equipment suppliers for the deepwater oil and gas industry. Here, drilling and extraction operations are more difficult and expensive to execute. The energy industry increasingly relies on deeper and deeper offshore drilling to replace declining onshore reserves. FMC’s competitive advantages in both the technology and the relationship side of the business make it one of the most attractive companies within the entire energy industry.
Another sector we like at the moment is healthcare. Population growth, technological change, and emerging major demographic shifts will continue to drive healthcare spending higher. For example, despite very high US health spending (about 15% of GDP), estimates suggest that 46 million people were not covered at all in 2007 (16% of the population). The need to meet rising demand, and the vast projected increase in expenditure, will offer healthcare companies enormous opportunities. However, the best investments going forward will be more esoteric than the traditional big pharma plays that have worked for fund managers in the past. Two companies we like are Stericycle and Allergan.
Stericycle ( NSDQ: SRCL ) is a leader in the collection, treatment and disposal of medical and biohazardous waste. As more people are able to access healthcare services, they will create more and more medical waste for a variety of healthcare providers. Stericycle has a competitive advantage as a low-cost provider with deep, multi-layer customer relationships. These make life difficult for rivals. The company also enjoys high barriers to entry within the medical waste management industry due to the highly regulated nature of its business. That’s especially true in relation to permit approval for incinerator installation and operation. Acquisitions will also be a very important part of its growth strategy going forward. We estimate a five-year, top-line revenue growth rate of 15%, with operating leverage potentially offfering an 18% growth rate.
We also like Allergan (NYSE: AGN), a multi-speciality healthcare company most notably known for its wrinkle-reducing drug Botox. This is now one of the world’s most versatile and widely researched medicines. Allergan focuses on developing and commercialising applications, ranging from medical dermatology, breast aesthetics, obesity intervention, urological and other speciality markets. Around 50% of the drug’s applications are non-cosmetic. For example, the US Food and Drug Administration recently approved the wrinkle-smoothing injection of Botox for the treatment of migraines. The company’s focus on providing products and services to an ageing population that wants to look better as it lives longer should support our expectations of 14% to 15% annual earnings per share growth.