3 Stocks Poised for Growth

VIDEO: Travel apps, robot surgery and payments companies are among the three stock picks this month from Killik & Co's Rachel Winter 

Holly Black 15 July, 2021 | 10:44AM
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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: So you're here for our monthly rundown of three stocks on your buy list. Where should we start?

Winter: Let's start with Airbnb (ABNB). So this is the name that we all know, it's one of the biggest vacation rental companies in the world. It's got over 4 million hosts, and it's active in over 220 countries. And it really benefits from what we call the network effect. So the more customers there are, the more hosts (indiscernible) the website, and that causes more customers to join. And that causes more hosts to join. So it just keeps getting bigger and bigger and bigger. And that means it's very difficult to compete with. The reason we like it now is that we think a lot of people this year will be quite nervous about international travel, and therefore we see quite a big increase in domestic travel. And that will be really good news for Airbnb. And furthermore, we think the share price looks quite attractive at the moment, the shares listed last year, they had a very strong rally. And then they came down earlier this year when there was a bit of a move out of growth stocks and into value stocks. And the shares are still a bit lower than they were. So we do think it's quite a good time to buy these.

Black: Now, as you say Airbnb IPOed last year, it's one of the few recent successful IPOs but feels like investors have got nervous about newly floated companies this year. Why is Airbnb the exception to that?

Winter: I think you've got to look at the potential for growth, you've got to look at the valuation, you've got to look at the potential for profitability. And we can see that Airbnb's revenues are clearly rising, we can see that their costs per rental are falling because the company is getting so much bigger. So we do definitely see a potential for this company to become more successful.

Black: Okay. What's stock number two?

Winter: Stock number two is a digital payments company called Adyen (ADYEN), which is a Dutch company. It's not particularly well known, but actually it's really big behind the scenes. And what it does is it acts as a middleman between merchants and other payment providers. So if you're a merchant, rather than having to sign up with Visa and Mastercard and PayPal, instead, you can just sign up with Adyen, and they will manage all of those relationships for you. So this is a company that's been growing very fast over the last few years, and particularly during the pandemic, as more and more businesses have moved online. And we do foresee that continuing. And it's a company that's got a lot of very big customers like Spotify and Facebook. And it's also starting to deal with more small and medium sized companies, and we think a lot more potential growth will come from there.

Black: Can a company like Adyen really compete with the big names in this space, like Mastercard and Visa.

Winter: I think that's why it works. Because it's not a competitor, it's a partner. So for the merchants, it's quite difficult for them to sign up to separate agreements with all of these individual payments providers. So just by signing up with Adyen, it saves all that hassle and they just have to deal with one counterparty.

Black: Okay. What's our final stock today?

Winter: The final stock is called Intuitive Surgical (ISRG). And this is a global leader in robot assisted surgery. And this does sound quite futuristic, but it's actually becoming almost quite common. It's very popular for smaller operations what we call minimally invasive procedures. And we think that's something that will continue. So how it works is you would have a robotic surgical arm that would be controlled by a surgeon via console. And it does allow for a more accurate surgical procedure. And that means it's more comfortable for the patient. And it means less recovery time for the patient in the hospital. And that leads to a lower cost for the hospital itself. So that's one reason why hospitals are quite keen on these robot assisted surgeries. So we do foresee this growing quite quickly in future.

Black: You don't think there'll be some resistance from patients who don't really like the idea of a robot doing surgery, they want a human.

Winter: I think it certainly does sound a bit scary, but the surgeon definitely is involved, and they are controlling the console. And the research and the data that's come out of these operations so far, do definitely show that they are less risky, and they are more accurate. So as it becomes more common. We do hope that more patients will become comfortable with it.

Black: Just maybe don't watch the Terminator before you go to the hospital.

Winter: Yeah, exactly.

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