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Baillie Gifford's 3 US Stock Picks

Helen Xiong, manager of the Baillie Gifford American Fund picks three US growth companies with global revenues 

Emma Wall 31 October, 2017 | 1:56PM

 

Emma Wall: Hello, and welcome to Morningstar. I'm Emma Wall and here today to give her three stock picks is Helen Xiong, Manager of the Baillie Gifford American Fund.

Hi, Helen.

Helen Xiong: Hi, Emma.

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

Xiong: So, the first stock is Amazon (AMZN), which is best-known as an ecommerce retailer. So, I think, the interesting thing with Amazon is, this is a stock that has been and continues to be underappreciated by the market. So, when Amazon listed back in the late 90s at the height of the technology bubble, even though most bullish investors thought that its total addressable market was $6 billion, which is the size of the total U.S. book market, last year its sales were reaching $130 billion and despite that it's a company that continues to grow at tremendous pace.

Wall: And where is the growth market for it now? Because as you said, it is underappreciated. People underestimated where it could go. How does a company that's already a market leader grow from here?

Xiong: So, I think, there are several different avenues for its growth. But even if you look at the core retail market, it's still very, very small. So, in the U.S., total ecommerce retail sales is about 15% and Amazon, if you include the third-party sales, is probably about 6%. And so, there's still so much to go for in the core retail market. But even in Amazon Web Services, the interesting thing with Amazon Web Services is that it's reached $10 billion in revenues within 10 years of its inception and there's only been two other companies that's gotten there in the same timeframe.

But I don't know if you follow the Consumer Electronics Show where we see the new gadgets that are coming out in the future. And this year they had a lot of connected robots or talking fridge, et cetera, and a lot of those had Alexa integrated with it. Alexa is Amazon's voice assistant, much like Apple Siri. So, Amazon Alexa is becoming the operating system for the home.

Wall: And what about the second stock today?

Xiong: So, the second stock is Tesla (TSLA), best-known as the EV maker, electric vehicle maker. I think what's happening in the auto industry is really interesting in that the auto industry is undergoing significant disruption in the form of electric vehicles and most companies don't understand what's going on yet. So, when you move to the electric vehicles, it's not just about replacing an internal combustion engine with an electric one, but it completely unbundles a car.

So, the proprietary IP that you build over the 100 years when it comes to the internal combustion engine goes out the window and it's replaced by commodity batteries and parts. So, the value of a car is moving away from engineered hardware into software and that completely changes the competitive landscape and Tesla is the only company that we see that really understands that shift.

Wall: And what about the and final stock?

Xiong: The third stock is Facebook (FB). I think the size and scale of what Facebook has been able to achieve in a very short space of time has been completely mindboggling, over a billion users in Facebook and WhatsApp, which is owned by Facebook. And I think it's a company that has already disrupted the media industry in that it's removed the traditional gatekeepers to media so that on your newsfeed.

A piece of news by BBC or CNN is no better or worse than cute cat videos or baby photos depending on what you like. And I think what would be interesting in the future is how already a lot of industries are becoming more social and Facebook will become the most important place for you to engage with your customers.

Wall: I think most people are a user of Facebook, but not everyone understands its revenue stream. Can you just quickly take us through how Facebook makes its money?

Xiong: Of course. So, it's from advertising at the moment. So, Facebook is about 5% of the global advertising market, but it commands about more than 10% of the users' time. So, even if that catches up – in advertising most people say, the money follows the eyeballs. So, even with that opportunity alone it has tremendous growth. But we are still early days with video.

Wall: Thank you very much, Helen.

Xiong: 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
Amazon.com Inc1,168.92 USD0.60
Baillie Gifford American B Acc611.86 GBP1.62
Facebook Inc A179.04 USD0.02
Tesla Inc328.91 USD4.37
About Author Emma Wall

Emma Wall  is Senior Editor for Morningstar.co.uk