We asked our contributors to choose their favourite investment ideas from around the world for this year and beyond. Here’s what they came up with.
Richard Beddard
XP Power (LSE: XPP) is top of my buy list. It manufactures power converters that do a similar job to those used in household appliances and home computers: they change electricity from the mains supply (alternating current) into the direct current used by machines. XP Power’s converters are more sophisticated because they are used in complex industrial machinery and medical equipment. Failure of these machines would be expensive, perhaps even deadly, so the power converters are made to a high specification.
The big risk facing companies that supply industrial equipment and components is the capital equipment cycle. During recessions manufacturers reduce investment in new equipment to save costs, which affects the revenue and profitability of their suppliers. XP Power, however, has sustained high levels of profitability. This is partly because it would be expensive for a customer to substitute a converter once it is designed into a machine; partly because XP has been growing market share thanks to its small, efficient, reliable designs; and also a result of the company selling into stable sectors such as healthcare, as well as a variety of industrial markets that peak and trough at different times.
That does not mean XP Power will grow profits every year, but it has become the market leader in the US and Europe, which bodes well for its long-term prospects. With the largest technical sales force in the industry seeking a growing share of the business of its blue-chip customer base, and XP’s control of design and manufacturing at its factories in China and Vietnam, rivals can do little to challenge it. The shares are available at the knock-down price of around £22, which values them at 16 times earnings on a debt-adjusted basis.