3 Top Stock Picks from 2020

VIDEO: Killik & Co's Rachel Winter looks at three stocks that have thrived this year and look set to keep growing 2021

Holly Black 21 December, 2020 | 10:00AM
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Holly Black: Welcome to Morningstar's 3 Stock Picks. I'm Holly Black. With me is Rachel Winter. She's Investment Director at Killik & Co. Hello.

Rachel Winter: Hi, Holly.

Black: Rachel, welcome for the last time this year, our final round up of three stocks that are on your buy list. Where would you like to start?

Winter: Well, I feel like we're ending on a positive. Clearly, we've heard all this good news about potential vaccines coming out over for the last few weeks. And now, we're starting to look at companies that could really benefit from this vaccine. So, we're looking for companies that haven't done too badly during lockdown, but ones that could really start to accelerate once these vaccines start to be rolled out.

So, the first company we're looking at is Walt Disney. This is an incredibly diverse business. So, they've got their parks. They've got media networks like ESPN. They've got their movie business and they've also got their direct to consumer streaming business. Now, clearly, during the lockdown, the parks and also the movie business haven't done particularly well, because restrictions have forced the parks and movie theaters to close. But Disney+, which is the new streaming service operated by Disney, has done incredibly well and has far exceeded expectations, and that's got 74 million subscribers in its first year of operation. So, that's been really, really good. We expect that to continue. And as the vaccine is rolled out, we hope to see a recovery in both the parks and the movie business.

Black: Yes, I was going to say there are two parts of the business, big parts of the business have lagged this year. Is that a concern if they don't bounce back?

Winter: It is a concern, but we really don't see why they wouldn't bounce back. We think Disney theme parks are incredibly popular. We think people are really desperate to get back to them. And as the parks are incredibly spacious, we do believe it would be possible to still operate those parks profitably with a degree of social distancing still in place for the early part of the year.

Black: Okay. And what is our second stock?

Winter: Second one is McDonald's, which has actually been a bit of a winner during lockdown. So, McDonald's has spent the last few years heavily investing into digital. So, it's really beefed up its mobile app and also its delivery capabilities. And also, McDonald's has always been very strong in drive through, and in the US about two-thirds of McDonald's revenues actually come from drive through. So, that's actually really benefited the business during lockdown. Loads of deliveries have taken place and a huge amount of extra business has come through the drive through. And me personally I tried to go to the drive through last week and the queue was so big, I had to turn away. So, that really shows you how popular these drive throughs have become. And I think this has really reintroduced a lot of people to McDonald's and we think that after the lockdown eases and the restrictions start to be reduced, we think that McDonald's will remain very popular.

Black: So, one thing some of the fast food chains are having to invest in are vegan and healthier options. Is McDonald's in that trend?

Winter: Absolutely. So, they've always been fairly strong in the vegetarian section and in some countries like India, for example, they do have several vegetarian restaurants. But more recently, McDonald's has partnered with Beyond Meat to publish a new vegan burger.

Black: Okay. And what is our final stock?

Winter: Final one is a company called Ecolab, which is another American company, and it's a leader in water and hygiene services. Most of the company's revenue comes from cleaning fluids. So, clearly, this is a business that has done very well during the lockdown, but the company mainly serves the leisure sector. So, we do expect that even after the lockdown ends, that businesses are starting to open again, we do expect there to be a continued focus on higher levels of hygiene and also sanitation training, which Ecolab also offers. So, we think this company is really well-positioned to do well as the leisure sector starts to reopen again.

Black: Yeah, any company that can lead the way in sanitation I'm guessing has done very well this year, but will that continue once we have a vaccine and presumably people become less cautious?

Winter: We expect it will do. So, Ecolab was doing well anyway even before the lockdown started. And one thing that people like about them is they do help other businesses to save power and energy. So, the products they produce actually help their customers in the hotels, in the restaurant sector to use less water and less power in their cleaning processes. So, we expect that to help them do well anyway. And we do expect that for many years after this pandemic ends we do expect there to be a higher focus on cleanliness and sanitation, and therefore that's another reason why we expect Ecolab to continue doing well.

Black: Rachel, thank you so much for your time.

Winter: You're welcome.

Black: For Morningstar, I'm Holly Black.

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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Holly Black  is Senior Editor, Morningstar.co.uk


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