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Fidelity's Jeremy Podger: My 3 Global Stock Picks

Jeremy Podger, manager of the Fidelity Global Special Situations Fund highlights three companies he thinks are undervalued by the market

Emma Wall 4 July, 2017 | 4:36PM

 

 

 

Emma Wall: Hello and welcome to Morningstar. I'm Emma Wall and joining me today to give his 3 stock picks is Jeremy Podger, manager of the Fidelity Global Special Situations Fund.

Hello Jeremy.

Jeremy Podger: Hello.

Wall: So, what’s the first stock you'd like to highlight today.

Podger: Well, I'd like to pick a stock that appears in the top 10 holdings, not necessarily considered the most dynamic by many, but Royal Dutch Shell (RDSB). And this is in the portfolio because it represents a corporate change situation, as a result of its takeover of BG Group.

I think that the key here is firstly in terms of synergies its able to exploit great synergies within its gas, particularly its gas trading activities around the world. It comes with tremendous advantage. Secondly, I think it gives a great discipline in terms of focusing on the balance sheet and a program of portfolio disposals which again should then remold the company in a much more streamlined way.

Wall: And what's the second stock.

Podger: Well the second stock is Citigroup (C) which has obviously been on a very slow recovery path since the financial crisis. We're now into I think the final stage of that as the wind down of the non-core asset part of the business, essentially ends, comes into its final stage and through this the company will be able to raise its return on equity and realize the value of its capital surplus.

We've just seen that very recently, through a huge buyback program that they have announced and that should then propel the company up towards what we see as closer to fair value.

Wall: And how long do you think that process will take.

Podger: Well, we've seen a real acceleration in that process since October as the markets got hold of the prospects for big cap U.S. financials returning capital. So, I think that we're probably in the last 12 months of this process. But the company has potential to surprise further in a positive way as we go along.

Wall: And what's the third and final stock.

Podger: Well the third and final stock is Google or Alphabet (GOOGL). It's certainly been in the headlines recently for the EU fine. And clearly, I think it's absolutely correct that government should pay more attention to the dominance of these huge tech players. What I like about this group is firstly the solid growth in its core search business, it's real dominance there and the hold that has on global advertising expenditure.

But also, the tremendous portfolio of other possibilities, not least of which is now being significantly monetized is YouTube, which receives 1 billion hours of viewer time every day. So that and the other ventures within it I think fully justify a multiple which is not significantly higher than the U.S. market as a whole.

Wall: Well I think that may surprise people. Because people do tend to think of these FANG stocks, these big tech stocks as overvalued, significant run they have had over the last 2, 3, 4, 5 years. But you as a special situations fund manager say actually still more to come better to come.

Podger: Right. This company should be able to achieve revenue growth in the teens for the next several years at least, generate a huge amount of cash flow. But we must be aware as with the other FANG stocks that I think regulatory scrutiny will increase from here. So that’s the risk factor.

Wall: Jeremy thank you very much.

Podger: Thank you.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
Rating
Alphabet Inc A1,035.89 USD-1.20
Citigroup Inc71.33 USD-0.47
Fidelity Global Special Situations3,916.28 GBP0.86
Royal Dutch Shell PLC B2,373.00 GBX-0.23
About Author Emma Wall

Emma Wall  is Senior Editor for Morningstar.co.uk