Each week, a professional investor tells MoneyWeek where he’d put his money now. This week: Nick Skiming, lead investment manager, Ashburton Americas Equity Fund.
My approach is to analyse longer-term secular trends, and combine this with a thorough understanding of individual stocks. Here are three shares I recommend.
An area I am particularly interested in is the evolution of battery technology in hybrid electric vehicles. One company that is already benefiting from this is Polypore International (NYSE: PPO), although here it is not the batteries themselves that are of interest, but what is in them. This mid-cap US company specialises in providing microporous membranes used in separation and filtration processes. Separators are a key part of lead acid, and more powerful rechargeable, lithium-ion batteries – and the company is one of the top three players in filtration.
The group recently said that it is building new manufacturing facilities to keep up with lithium demand over the next few years. New battery demand, however, will not be the only growth driver. There will be ongoing, recurring revenues from replacement batteries and car owners upgrading their models. Polypore also has exposure to consumer electronic devices such as the rechargeable batteries found in smartphones and computing, its nano-filters also have medical applications in blood separation. In short, there are a number of different avenues for potential revenue growth.
A second company I like is Coach (NYSE: COH), a luxury leather goods group, specialising in handbags. This company is relatively mature in the US (70% of sales), but investors should focus on the international opportunities. Whilst the US high-end consumer appears immune to a slowdown and can provide a consistently strong revenue stream, the business is also expanding rapidly into China.
That gives it access to a huge population, rapidly increasing living standards and consumers willing to spend new found wealth. Coach currently has 55 stores in China and expects to double these in the next couple of years. Such is the desire for previously unattainable luxury products that the company has said that its bags sell at a 60% premium to the price in the US. A new venture in leather goods for men is also working well, particularly in Asia, and providing a useful new source of revenue.
Finally, I recommend Green Mountain Coffee Roasters (Nasdaq: GMCR). This business is admittedly higher risk than the previous two. However, it does have several characteristics I like – potential access to a new mass market, relatively stable recurring revenues and minimal cyclical risk. The business is number one in the US in single-cup coffee appliances through Keurig, a manufacturer it bought a few years ago. Coffee makers are sold at cost so the real money is made via ongoing and recurring sales of single coffee pods. Sales of the appliances to businesses and for in-room catering in hotels have been very strong.
The company hopes to double its market share of US households from 7% to 16%, and is expanding its range beyond coffee to tea and iced teas. Alliances with Starbucks, Conagra and Dunkin’ Donuts will help, not to mention the 6% stake in the business held by Italian coffee group Lavazza, which suggests that the company is winning some high-profile friends to help it achieve its ambitions.