3 Future-Proof Stock Picks

VIDEO: Killik & Co's Rachel Winter is back in the virtual studio to discuss renewable energy, electric vehicles and sales software

Holly Black 8 September, 2021 | 11:26AM
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Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Rachel Winter, she's Investment Director at Killik & Co. Hello.

Rachel Winter: Hi, Holly.

Black: So, you've got three stocks for us today, where should we start?

Winter: Let's start with NextEra, which is a U.S. company, and is a world leader in renewable power. There are two parts of the business. One is a traditional utility business, so it generates, transmits and distributes electricity. And the other part of the business is where we think the real growth opportunity is and that focuses on developing and installing new renewable power assets. So this part of the business is the biggest in the U.S., it's the U.S. leader in this area. And it has a huge backlog because there's so much demand for renewable power assets. And we think this will only continue because of Joe Biden's big plans for building out renewable infrastructure across the whole of the U.S.

Black: I don't think of the U.S. as a place where renewable energy has really come into the mainstream. Is there growing demand from households for this?

Winter: There's a huge amount of interest, there is a huge amount of demand. Yes, as a country, it's still very much focused on fossil fuels. But you could argue the same about the U.K. I mean, particularly for vehicles, for example we're still very dependent on petrol and diesel, but it is changing very quickly. And Joe Biden's plans for reducing that dependence on fossil fuels are very ambitious indeed.

Black: Okay, what is stock number two.

Winter: Next one, also slightly related to electric vehicles is a company called Nidec. It's a Japanese company, and it's a leader in the production of electric motors. So electric motors actually account for over half of the world's electricity consumption. So if we can find a way to reduce the power that's used by these electric motors, then we could save a lot of power globally. So what Nidec does is it produces very efficient and long-lasting motors. Historically, the company has focused on the electric motors in consumer electronics, but it's really moving quickly into the automobile space. And this is again, where we think there is a huge growth opportunity. And we do see very good things in the future for Nidec.

Black: And that presumably might encourage more people to buy electric cars, because I think battery life and motor power is one of the concerns for a lot of drivers.

Winter: Absolutely. So the batteries in electric vehicles are very expensive. So there is a concern that they won't last particularly long. And then people will have to spend perhaps £15,000 replacing that battery. So if we can produce one that lasts for much longer than that should make these vehicles much more appealing.

Black: Slightly more expensive than just going on buying a pack of AAs. What is our final stock?

Winter: Final stock is Salesforce, another American business. And it's a global leader in customer relationship management or CRM. And Salesforce is a huge leader in this market with a market share of almost 20%. And we're seeing huge demand for this at the moment. So a lot of companies are moving online, they're wanting to become more digitally enabled. And that means they want to have a front office platform where they can view their customer data, they can analyse it, they can get a better understanding of their customers, and that will help them to market to and sell to their customers more effectively. So we're seeing huge amounts of demand for these CRM platforms. Salesforce is definitely a leader results last week for Salesforce were incredibly strong. And the company has clocked up year-on-year growth, revenue growth of over 20% for the fifth quarter in a row. So the results are looking very strong at the moment.

Black: And presumably a company's services like that only become more important in a world where remote working is becoming normalised.

Winter: Absolutely. So we've seen a huge acceleration in demand over the last year. And Salesforce operates in a software-as-a-service type of model. So once companies have locked into that subscription service, then that revenue is recurring. So for an investor that really is very appealing.

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


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