Liontrust: 3 Top Sustainable Stocks

Liontrust head of sustainable investment Peter Michaelis picks three companies with long term growth trends and high ESG scores

Emma Wall 9 October, 2017 | 9:50AM
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Emma Wall: Hello, and welcome to Morningstar. I'm Emma Wall and I'm joined today by Peter Michaelis, Head of Sustainable Investing for Liontrust, to give his three stock picks.

Hello, Peter.

Peter Michaelis: Good morning.

Wall: What's the first stock you'd like to highlight today?

Michaelis: I'd like to highlight Kerry Group (KYGA). Kerry Group is an Irish company that started out as a dairy cooperative, but it's now become the champion of food reformulation. What that means is that major food companies go to Kerry Group because they have a problem with their products and the problem they have with their products now is they are too full of fats, sugars, salt and not enough natural ingredients.

So, Kerry Group sees very strong long-term growth because we are all changing our diet. There was a survey done by Nielsen in 2015 and two-thirds of people want to cut down on fats and sugars and about 60% want to know where the ingredients come from within their products. And this is a major structural trend within the food industry which benefits Kerry Group.

Wall: And what's the second stock today?

Michaelis: The second stock is another stock exposed to a long-term trend. It's called Infineon (IFX) and it's in the semiconductor space. But Infineon sells into the automotive sector. It does power management and sensor chips. Now, the reason why there's huge growth here is because of both emissions reduction as we've all heard with Volkswagen's troubles in trying to reduce the pollution from their cars, but also safety.

So, just to give you an example, a normal internal combustion engine car has about £300 worth of semiconductor chips within it. An electrical vehicle like a Tesla has more than double that. So, a big structural trend driving demand for Infineon's products.

Wall: You talked about big structural trend. What kind of timeline are you talking here? Because maybe 10 years ago we were all expecting to be driving electric cars. The pickup hasn't quite been as quick as that. The recent ruling on diesel will help probably to accelerate that. But what is the timeline when you're looking at a stock like that?

Michaelis: We always look out five years. So, we are looking to hold these stocks for three to five years. So, in that timeframe we believe the growth prospects of companies like Kerry and Infineon are materially underappreciated.

Wall: And what about the third and final stock?

Michaelis: The third and final stock is in a different sector, and this is, a company called Thermo Fisher (TMO). It's a U.S. company and it sells, sort of, medical technology products. Now, the really interesting thing driving demand for Thermo Fisher's products is the fact we need to get more out of our healthcare system. We need to be more efficient. And one area is diagnostics, early diagnostics of diseases we're likely to get or conditions that we may be carrying anyway. And this is sort of exposed to the massive deflation in the price of gene testing.

So, the first DNA sequence of Craig Venter cost hundreds of billions. Now, you can get yours done for less than $1,000. And this opens up a huge new range of diagnostic interventions and Thermo Fisher is well-exposed to those.

Wall: And biotech stocks and indeed, there was one early diagnostics company whose name I forget begins with a Th, which folded quite spectacularly in the U.S. last year. But biotech stocks can be quite volatile. What about this stock that makes it a kind of much more safer long-term play?

Michaelis: Well, if you like, Thermo Fisher is selling the picks and shovels to the biotech industry. So, you need its equipment to carry out the research. So, we are not betting on any one particular company being successful in its development. We are betting on the whole biotech area, so increasing in intensity over the coming years.

Wall: Peter, thank you very much.

Michaelis: Thank you, Emma.

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.

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Emma Wall  is former Senior International Editor for Morningstar