Every so often I like to give out some stocks I am watching and in this case I am watching these stocks in Q2 of 2021. Please note I am not giving financial advice or telling you to buy these stocks. These are ones I am watching as they show potential promise for the future.
PayPal
Paypal is a leading ‘digital wallet’ company, providing a range of online payment services and options for consumers and merchants in the online world. Since it was spun off from eBay in 2015, PayPal has transformed itself from the leading internet-only payment platform into a digital payment super-app.
It has done this by continually innovating successfully. PayPal now covers all areas of digital transactions including buying and selling online, peer-to-peer fund transfers, mobile-based payments, consumer and business credit services and, now, even cryptocurrency trading.
This year the company’s 400 million users (which are growing at a +21% year-on-year growth rate) will transact over one trillion dollars worth of commerce across PayPal’s networks.
Skyworks Solutions
Skyworks Solutions is a global leader in the design and supply of radio frequency (RF) chips. These are critical components used to wirelessly connect devices to the internet via wi-fi or mobile phone network signals. These are highly complex analogue-to-digital components, with decades of expertise and knowledge going into the design of each generation of new chips.
This complexity creates a significant barrier to entry and only a handful of companies can produce these high-end technology enabling components.
The dramatic fall in the cost of this technology is also enabling the ‘Internet of Things’ trend to take off, with 70 billion devices (think: phones, computers, cars, appliances, infrastructure, machines in factories, etc.) expected to be connected to the internet by 2025. Most of these devices will be carrying Skyworks technology on-board and we expect this multi-decade trend of connectivity to drive strong revenue and profit growth for many years ahead.
One-third of the world’s population (1.88 billion people) log onto one of Facebook’s platforms daily (Instagram, WhatsApp and Facebook itself). 44% of the world’s population (2.85 billion people) logs onto one of these platforms at least once a month.
This is extraordinary reach for any digital platform business. This is especially impressive given that there are only 4.66 billion people connected to the internet.
Facebook presents advertisers with a unique advertising proposition, with almost unmatched reach and targeting of users available. Its financial growth prospects are strong with the continued growth in its userbase, the migration of advertising spend online (away from traditional advertising), the introduction of eCommerce retailing on Instagram, and the nascent opportunity to monetise WhatsApp. We see significant upside ahead from owning the world’s number one social media business.
Etsy
An online marketplace that not only survives but thrives in the age of Amazon, by creating its own unique niche, is a very attractive business to own. Etsy provides a marketplace for artisan manufacturers to sell their unique or small-batch products. Taking a circa 10% share of the $12 billion spent on the platform annually through a mixture of commissions and platform advertising, the company has risen to become the 4th largest eCommerce site in the US by web traffic, while it has massive scope for international expansion. This is an exciting and high-growth niche within the wider growth in digital commerce.
Visa
Together with Mastercard, it dominates the payment cards market worldwide (excluding China) benefiting from the death of physical cash – the longer-term global megatrend that sees cash replaced by electronic payments such as card, online or contactless transactions. Owning VisaNet, the world’s largest payment network which connects banks, verifies payments, and processes transactions, Visa charges a fee on each transaction, in a highly profitable business model that allows it to generate operating profit margins in excess of 60%.
In 2020 more than $11 trillion flowed across Visa’s payment network, generated from 3.5 billion Visa credit and debit cards worldwide. This shift away from physical cash and the adoption of card-based payments and digital payments around the world supports many years of growth in this business ahead of us.
Charles River Laboratories
Charles River Laboratories is one of the leading providers of early-stage research services to pharmaceutical and bio-technology companies in the world.
It specializes in being a global leader in specific areas of complex early-stage drug discovery and drug development services related to the development of new medicines. As new generations of medicines become more and more complex to discover, develop, trial and manufacture, the services Charles River offers become ever more important.
The world’s population is growing and living longer, and this sets up decades of demand growth for new medicines ahead of us. This is translating into continued high growth in demand for research services to develop those medicines, and Charles River is a major beneficiary of this long-term structural demand.
Cameco
Cameco is one of the world’s largest uranium mining companies, owning some of the lowest cost and highest quality uranium mining assets in the world.
Uranium is used to create fuel for nuclear power stations and so rising demand for nuclear power will drive rising demand for uranium. Nuclear power, despite the controversy, is largely safe and generates significant amounts of zero-carbon energy. With 85% of world energy still coming from fossil fuels today and global energy demand expected to double by 2050, much of this from emerging markets, the world’s need for 100% zero-carbon energy to tackle climate change cannot be met by wind and solar alone.
Nuclear is increasingly playing a part in climate change mitigation plans around the world, with ambitious growth targets from China and India. This sets up the uranium market for much higher demand and with supply constraints, means we are likely to see much higher prices and potentially then much higher share prices in uranium linked stocks.
Starbucks
Starbucks is the world’s leading coffee retailer with a global presence in a high growth beverage and food retail category. The company has the highest return and highest margin store model of any player in this retail category, which allows the company to reinvest its higher cash returns back into growth, thus giving it a scale that no competitor can match.
Coffee is addictive, has no negative health effects, and is cross-cultural (most humans like it, whether in the US, India or China).
Starbucks is now the number 1 coffee player in China, with high growth rates there driven by the aspirational nature of buying Starbucks coffee among the newly rich and emerging middle class. Starbucks has many years of growth ahead of it as it continues to expand into emerging markets where demand is high for its leading retail model.
BYD
BYD is the world’s largest electric car manufacturer measured by the number of vehicles produced and sold. It is also the leader globally in electrically powered buses and other commercial vehicles.
It is number 1 in China, the world’s largest electric vehicle market, and is now expanding into many other markets with its leading technology. BYD owns its battery technology and manufacturing, and its battery-powered cars match the highest performing electric cars in Western Markets (as good as and sometimes better than Tesla ranges).
The company’s management are amongst the best of any company in the world (Warren Buffett is an investor in BYD too). Global electric vehicle demand is expected to rise 50x (+5,000%) over the next decade, and we believe owning the leader in China (world’s largest and highest growth EV market) is the way to play this trend.
Garmin
Garmin has leveraged its strong location-based technology (spends 19% of sales on research & development to maintain its tech lead) over a variety of consumer markets that tap into numerous long-term growth trends – healthier living, outdoor and connected fitness, younger generations, lifestyle experiences and increased safer mobility. Ask any golfer, angler, cyclist, amateur pilot (boat, small plane or Powersports), scuba diver, endurance runner and extreme trekker. Their strategy is to find a niche and deliver the best tech.
With a strong focus on younger and healthier generations, demand for Garmin’s goods and services remained strong throughout COVID and we expect the trends favouring more demand for outdoor and wellness to continue driving demand growth for Garmin’s products.
Idexx Laboratories
Idexx Laboratories is a big winner from the global trend toward the “humanization” of pets which is encouraged by doctors which see companion animals as therapeutic for ageing populations. Pet care is an emotional discretionary spend and is the fastest growing and most resilient segment of pet spending, which in turn has outpaced general consumer discretionary spending growth for more than decade.
Animal Diagnostics systems improve pet healthcare. Most systems operate only with “use once” kits provided by the manufacturers of the testing equipment, which means that once the system is installed it generates recurrent revenue. The more systems that are installed the bigger the switching cost to a rival.
Idexx is the global number 1 with >40% market share and >90% of its revenues recurring. It is 5x the size of its nearest rivals and it outspends in terms of R&D to maintain its technology lead. Its business model assures pricing power and until pets can speak and thus self-diagnose, disruption is unlikely.
Kering
Kering largely because until recent results proved the contrary, investors had wrongly concluded the core Gucci brand to be ex-growth (due to explosive growth in the past). With evidence that Gucci is clearly growing, shares have played catch up of late but there is plenty of scope for them to go further as a prospective valuation of EV/EBIT of 17x remains at a discount of 21% to Tier-1 luxury peers.
Moncler
Moncler’s CEO Ruffini has carved a unique niche for Moncler as the “must have” expensive outdoor winterwear brand and is now looking to achieve a similar outcome for the recently acquired Stone Island Streetwear brand which focuses on advanced fabrics. The acquisition reduces seasonality and adds a new growth engine with plenty of scope for high profit growth by pivoting the Stone Island brand away from wholesale toward direct-to-consumer retailing. Prior to the acquisition Moncler’s CEO was being courted by industry rivals where he is recognised as a leading innovator in pioneering the shift away from twice annual collections and cat walks to continuous design innovation. This shift has underpinned the Moncler brand’s success with always connected younger generations.
A decade long double-digit growth track record (excluding COVID impacts) raises the probability that Ruffini will work the same magic with Stone Island as he has done with the Moncler brand.
Bright Horizons Family Solutions
Private education and in particular discretionary pre-school child care & teaching is one of the fastest-growing components for the wallet share of the affluent middle class around the world.
Structural change, specifically women entering the workforce and government policy to increase productivity, drives continued demand growth, especially in emerging markets. President Biden, for example, has put 3 and 4-year-old childcare at the top of his fiscal spending agenda, promising $225 billion over the next decade in this category. Bright Horizons Family Solutions at the share price lows in 2020 (having exited close to highs before COVID’s onset ).
The management is excellent as they took advantage of COVID to develop alternative care services for affluent young families with the goal of becoming the first port of call for affluent families seeking care, whether via a child centre, babysitting platform, summer day camps, remote care facilities or schools advisory counselling.
Summary & Important Note
This is not financial advice, I am not advising you to invest in these stocks and shares. These are stocks that I am watching over the next quarter to see what happens to their plans and prices over the next few months.
Please always do your own research.
