3 Resilient Stock Picks

Rachel Winter, investment director at Killik & Co, looks at companies like Nike and Nestle that have been able to adapt to changing times

Holly Black 11 September, 2019 | 9:17AM



Holly Black: Welcome to the Morningstar series "3 Stock Picks." I'm Holly Black. With me is Rachel Winter. She is Investment Director at Killik & Co.


Rachel Winter: Good morning, Holly.

Black: So, three stocks for us today. Where would you like to start?

Winter: Well, I've got a bit of a theme this week. So, at the moment, quite understandably, lots of our clients are fairly concerned about the markets in terms of Brexit, in terms of the U.S.-China trade war. So, we've been looking at really stable solid blue-chip companies that crucially have been around for a very, very long time. So, the first company we're looking at is Nestlé, goes all the way back to 1905. So, Nestlé has been around for more than 100 years. It's weathered many, many financial storms, the dotcom crash, the financial crisis, and it's always managed to adapt with the times.

So, Nestlé is the largest food manufacturer in the world, has a really solid core business. It owns brands like Nescafé and Kit Kat. But there are also a number of growth drivers. So, one of them is that it's moving towards vegan and plant-based food. That's a big trend at the moment. And another is that they have a fairly new chief executive. He's come from a healthcare background, and he's trying to move the company more towards nutrition, and we think that's a really, really good space to be in. So, very good solid core business, but also a couple of very appealing growth drivers as well.

Black: When companies like Nestlé start developing vegan or healthier products, how long before they get that to market from having the idea, because presumably, there's a danger that you miss the trend?

Winter: There could be. So, I imagine it does take many months to go through all those safety checks and the development and making sure the food actually tastes good. But I do think this vegan and sustainability trend is going to be around for quite some time. So, I do think it's the right move to try and move towards that type of product.

Black: And companies like Nestlé benefit, because even if there's a recession, I'm not going to stop buying chocolate?

Winter: Me neither or my coffee.

Black: What's stock number two?

Winter: Next one is Nike. So, this goes all the way back to 1964. I've just read a book about Nike called Shoe Dog, which I'd highly recommend, a really interesting read. So, Nike has its roots in developing running shoes. But it's grown to become the biggest sportswear company in the world, has a presence in almost every sport going, it makes shoes and it makes clothing. As with Nestlé, it's got a really good solid core business. I don't think we're ever going to stop taking part in sports.

So, there's always going to be a demand for what Nike does. But as with Nestlé as well, lots of really, really good growth drivers in the short term. So, one of the big ones is the growth in the popularity of women's sports. So, Nike has got a really, really good presence there. And also, the growth in online sales. So, in the past, Nike would have sold a lot of goods through department stores, and they would have lost a lot of the profit margin to those department stores. Now that Nike is selling more directly to consumers through its websites, they do get to keep a much higher proportion of that profit margin.

Black: And these companies are also being driven by this trend of athleisure, which is also in turn being driven by people working more flexibly or perhaps choosing to run or cycle to work instead of getting the bus or the train where possible.

Winter: Exactly right. So, Nike is a really fashionable brand. People love to be seen wearing Nike, whether that's at the gym, or outside of the gym, as you say, as a part of this athleisure trend.

Black: Super. Right. What's our third and final one?

Winter: Third one is called Medtronic. So, this is the biggest medical devices company in the world, goes all the way back to 1949. It really is a huge company. So, just to give you a sense of how huge it is, it operates in 140 countries, and it has 86,000 employees. It's huge. It's absolutely massive. Medical devices, we think, is a very important trend. Healthcare in general is a great sector to be in if you are worried about the markets, because it tends to be quite defensive. We're always going to be demanding healthcare products and services. But for medical devices in particular, we think the aging population, the growing middle class and the growing levels of wealth in the world, and also the growing awareness and desire to spend more on healthcare will all be very good for the medical devices market.

Black: What about this clamp down on sort of the amount companies can charge for drugs and stuff? Does that impact companies like this?

Winter: I think that means that's probably a bad news for pharmaceutical companies actually making the drugs. So, you could actually say that that could be better for the medical devices companies because doctors and physicians are possibly more likely to prescribe devices rather than drugs.

Black: And presumably as well, there's a trend of prevention rather than cure. So, maybe the outlay for the device that stops someone getting ill in the first place is better for insurance companies…

Winter: Exactly. That's a big trend as well. And I've given this example many times, but diabetes is a great example. So, in the long run, it's cheaper to give someone a device that allows them to manage their own glucose levels, rather than waiting till their condition gets really serious and then having to give them those expensive drugs. So, I think, overall, there really is a trend towards prevention rather than cure.

Black: Super. Well. Thank you so much for your time.

Winter: You're welcome.

Black: And thanks for joining us.

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.

About Author

Holly Black  is Senior Editor, Morningstar.co.uk

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