Holly Black: Welcome to Morningstar's 3 Stock Picks. I'm Holly Black. With me is Rosanna Burcheri. She is Manager of the Artemis Global Select Fund. Hello.
Rosanna Burcheri: Hello, Holly.
Black: So, you've got three stocks for us today. Where would you like to start?
Burcheri: I would like to start from a stock that we have hold for ages in the fund in our automation theme. It's a Japanese company called Harmonic Drive. It's a fascinating company because what it does is practically these very small components that go in the arm of the robot that allow the robot – the small kind of robot when he approaches the things that he has to hold to work on to slow down.
Just to give you a little bit of sense. Today, there's more robot, what they call the cobots, that can work in near human, represent only 3%, 5% of all the robots, and the forecast is for that number to be 15% in the next 10 years. So, you can imagine the big development in these cobots. And then, the incredible growth potential that this company has in selling these peculiar components that goes in the making of the robot.
Black: But is there not a risk that another company will come along and make that component better or cheaper, or both?
Burcheri: Yes, there is always, and that's a fair question and that's our job. We always need to take into account the competitive environment. Yes, as you can imagine, there's the usual Chinese company that have tried to copy the mechanism. But yes, it's a fair question. There is always the competitor coming up. You want to be with a company that is really two or three years ahead in terms of R&D they keep on investing and that's the kind of company that Harmonic Drive is.
Black: Okay. And what's stock number two?
Burcheri: It's a very – another unusual stock. Maybe you don't know it. It's called Trane. It was come up from the spin-off of Ingersoll in the US and it's one of the leaders in the US in terms of what we call HVAC, so it's the air conditioning system for bigger commercial buildings. The reason why I like this stock is because it's part of what we call our low carbon theme. If you think about there is this big movement towards better energy, energy efficiency. And one of the big areas of investment is really the upgrade of the efficiency of buildings. On average, around less than 0.3% of the stock of building is refurbished on a yearly basis. They want to push it to 3%. Seems a small percentage, but you know it's almost three times more. Well, guess what? One of the best ways to get a better energy efficiency of the building is to refit your air conditioning system.
Black: Okay. And what is our final stock today?
Burcheri: It's a tiny Swiss company that I'm really sort of heartily attached to it because it was one of the first companies that I analysed when I started working 24 years ago. It was quoted on the Swiss market. It's called SIG Combibloc. It is the number two with the Tetra Pak in the making of the carton box for beverages. They make the machine, and above all they make what we call the consumable sort of sleeve of carton box that they go into the machine and makes the box in which you can put the milk, orange juice. And more and more you're seeing push about a company like Unilever to come up with even water now bottled into paper packaging. It's a fantastic position. Maybe it's a company that is not a very well-known but it's a company that is able to grow the top line in a very consistent way and above all, what I'm looking for growing their free cash flow, and the free cash flow being driven by really this big war against plastic that the world in a certain way is driving.
Black: Rosanna, thank you so much for your time. For Morningstar, I'm Holly Black.
