Global stock markets have been volatile lately, but there are still plenty of great long-term investment opportunities if you look carefully. The National asked some leading investment experts to name their favourite stocks for the next few turbulent years, and beyond. Their choices ranged from renowned global giants such as Apple and Disney, to smaller electronic companies that will not have crossed your radar, until now. You will need to do your own research before deciding whether to invest money into these stocks, and if they fit into your investment profile. They may be too risky for some people.
Visa
With around 900 million credit cards in circulation worldwide (and maybe one or two in your own wallet), Visa needs no introduction.
Dan Dowding, chief executive (Middle East & Asia) at IFAs Killik & Co in Dubai, says the world’s leading global payments technology company should benefit from rapid growth in electronic payments. “We expect to see significant growth in card-based transactions, especially for lower value items,” says Mr Dowding, pointing out that Visa does not actually issue credit cards or extend credit, but acts as a network operator to process card payments. “In 2013, Visa cardholders spent US$4.4 trillion over its network.”
Mr Dowding says Visa has a resilient business model and a secure and reliable service that can work in fast-growing emerging markets as well as the developed world.
It also has juicy operating margins, expected to be around 65 per cent in 2015.
Visa is trading at a more expensive valuation than its big rival MasterCard, he says. “But this is a price worth paying due to Visa’s recent superior growth, more attractive geographic profile, defensive pricing strategy and lower regulatory risk profile.”
Disney
In a world where brands matter, there are not many stronger names than Disney.
But the US leisure and entertainment giant does not just make movies, it also has a global theme park and cruise ship operation, Mr Dowding says.
“Its new Shanghai Disney Resort will open this year, with the capacity to accommodate 18 million visitors annually. This will drive revenue and profits, and open up the Disney characters and merchandising into the world’s largest consumer market.”
If you invest in Disney, you aren’t just buying its entertainment and theme park brands, Mr Dowding says. “It also generates content under Pixar, Marvel and Lucasfilm, and owns both the ABC cable network and ESPN, the leading US sports provider.”
Its recent Q4 results beat market expectations, with studio revenues up 18 per cent, driven by theatrical revenues from Guardians of the Galaxy and Maleficent, as well as DVD sales of Frozen. Earnings per share (EPS) rose 16 per cent.
Disney’s media networks, parks, resorts and cruise ship businesses all did well, offsetting a drop in revenues from Disneyland Paris.
The company intends to release 21 blockbuster movies over the next three years, compared to 13 over the past three.
Mr Dowding says Disney is also well placed to take advantage of the switch to on-demand TV, where strong content will be the key to capturing consumer attention across multiple viewing channels.
Juniper Networks
Peter Garnry, the head of equity strategy at Saxo Bank, picks out the California-based networking equipment specialist Juniper Networks as a great near-term investment prospect.
The company was set up by Pradeep Sindhu in 1996 to supply high-performance routers in the early days of the internet, and has been growing strongly ever since.
Today it has a market capitalisation of $9.83 billion, and generates two-thirds of its revenues from telecom companies.
Mr Garnry says: “Juniper Networks is on our conviction buy list for US equities due to its high shareholder yield, which is combination of dividend yield, share repurchase yield and debt reduction yield. It also has healthy cash flow and low valuation relative to its growth prospects.”
EPS at the company are expected to grow a healthy 19 per cent this year, and average more than 11 per cent the year for the next five years.
Mr Garnry says the network and router market is set to grow strongly in 2015, and Juniper should outperform its rivals. “We expected to see a strong pickup in earnings this year, something that isn’t reflected in the current share price, so now could be a good time to buy.”
Apple
The consumer electronics giant Apple is the most admired brand in the world, but its reputation recently slipped among investors.
After the death of the talisman Steve Jobs, many feared the glory days were over, never to return.
The share price fell 30 per cent in 2012, low-cost competitors such as Samsung were catching up, and innovation seemed in short supply. Even the much-hyped Apple Watch announcement failed to convince investors that the new boss, Tim Cook, could escape the shadows of the old boss.
But Apple’s recent results won over many sceptics, with fourth quarter profits up 37 per cent year-on-year to $18bn, the biggest single quarter profits reported by any public company in history.
Mr Dowding at Killik says: “This was driven by a strong performance from the iPhone, which saw revenue increase 57 per cent, with 74.5 million units sold.”
He says Apple retains its significant competitive advantage in product design, marketing ability and customer loyalty. “Its Macs, iPhones and iPads all run the same core software and content platforms, which enables the company to generate R&D and marketing leverage that is unmatched in the technology industry.”
Apple has also reported strong take-up among new users, either buying their first smartphone or switching from Android.
It is now sitting on an incredible cash balance of $178bn, and has returned $57bn to investors in the past year through dividends and buybacks.
Mr Dowding adds: “New products such as Apple Pay and Apple Watch could drive profitability for some time to come.”
Xilinx
Dan Roberts, portfolio manager of the Fidelity Global Dividend Fund, also picks out a US-based technology company.
He tips Xilinx, which operates in a sub-sector of the semi-conductor industry known as Programmable Logic Devices, where it enjoys a duopoly with Altera Corporation.
Nasdaq-quoted Xilinx enjoys high profit margins and offers high returns on invested capital, Mr Roberts says, adding that the company also has a strong balance sheet, good cash conversion, and low capital outlay, because while it designs and develops semiconductor microchips, it outsources the actual production.
Bad news can often be a good opportunity to invest, and that’s the case at Xilinx, which is down 15 per cent in the last year, Mr Roberts says. “A poor update in July has driven the stock down to an attractive valuation and, importantly, low enough to compensate for the cyclicality seen in this sector.”
Telstra
Mr Roberts also picks out the telecoms company Telstra, Australia’s former telephone monopoly, and still the country’s leading provider of mobile phones, landlines and broadband.
Telstra is making a big push to get millions of Australians to sign up for subscription TV services, although it faces competition from rival broadband suppliers SingTel-Optus, iiNet, M2 and TPG Telecom.
Mr Roberts says investors should pocket a steadily rising dividend. “There is also potential for capital return from the National Broadband Network, which is currently being rolled out to offer superfast internet across Australia, and offers a great opportunity to deliver cash flow in the longer run.
“Telstra has a disciplined, high-quality management team that takes a measured approach to reinvestment and has a deep understanding of the market and both the weakness and potential of the business.”
Burberry Group
Burberry has been a top performing stock over the past five years, growing 200 per cent in that time. And it has continued to turn on the style in 2015, rising 10 per cent in January alone.
That is the power a global fashion brand can offer investors, with strong sales in the US, China and Korea offsetting a slight dip in Hong Kong.
Helal Miah, an investment research analyst at stockbrokers The Share Centre, says Burberry is a well managed company that has defied fears of slower growth in emerging markets to maintain strong sales growth.
“Part of Burberry’s success is down to online sales and social media, where it has built strong brand awareness, even in the beleaguered euro zone.”
Rio Tinto
So-called contrarian investors like to buy stocks in well run companies that have fallen out of favour with the market for reasons beyond their control.
That allows them to pick up their shares at discount, and cash in when market sentiment swings back in their favour.
If that sounds a tempting strategy, the British-Australian minerals and metals mining giant Rio Tinto, listed on the London Stock Exchange, might be tempting.
Its share price has suffered lately as the entire commodity sector has fallen out of favour, because of slowing demand from China, the main global consumer of industrial metals such as iron ore and copper.
Rio Tinto’s share price has fallen 25 per cent in the past three years, but Helal Miah at The Share Centre says this is no reflection on the quality of the company. “Rio Tinto remains a solid operation with good cash flows and an attractive dividend currently yielding 3.75 per cent a year.”
It has been hit particularly hard by a sharp drop in the iron ore price, but has kept the revenues flowing by raising production to record levels.
Mr Miah says you should only invest in Rio Tinto if you expect the global economy, and China in particular, to recover over the next decade. “If it does, this stock offers great long-term growth prospects for investors, and is a buy at today’s reduced price.”
Tesco
For a really brave contrarian buy, you might consider Tesco. The world’s third-largest supermarket chain’s plans for global domination came unstuck last year, when its share price halved after a series of profit warnings.
After the chief executive Philip Clarke resigned last year, new boss Dave Lewis discovered a £263 million (Dh1.48 billion) black hole in Tesco’s accounts, which is now being investigated by regulators.
But Mr Lewis has rolled up his sleeves and got on with the job of turning Tesco around, cutting jobs, closing underperforming stores and selling off its hubristic fleet of private jets.
He has a long way to go to repair the tarnished Tesco brand, and faces tough competition, especially from the cut-price German supermarket chains Aldi and Lidl, that have attracted cash-strapped British consumers in their droves.
But the Tesco share price is up 20 per cent this year, as investors warm to “drastic Dave”.
The Morgan Stanley analysts Edouard Aubin and Francois Halconruy expect Tesco to benefit from a return to its core values. “We believe Tesco has sufficient firepower and self-help to improve meaningfully the competitiveness of its UK customer proposition.”
Any investment in Tesco is a gamble, but it could pay off.
Unilever
If you want a solid global company that has delivered the goods year after year, look no further than Unilever.
The household goods giant boasts a wide range of globally recognised names, including the food brands Knorr, Hellmann’s and Flora, and cleaning products such as Lux, Surf, Vaseline and Comfort.
These are not the most exciting products in the world, but millions of people buy them every single day, you almost certainly have several Unilever brands in your kitchen or bathroom cupboards.
The real excitement comes from its growth prospects in emerging markets, as increasingly wealthy consumers drop western brands into their shopping trolleys.
The chief executive Paul Polman famously said that this is where Unilever’s next one billion customers will be found.
Garry White, chief investment commentator at the stockbrokers Charles Stanley, says the company is nicely positioned even if global growth slows. “Emerging markets really do offer the chance to access the next billion consumers. It’s where Unilever should be.”
Unilever isn’t cheap, its shares typically trade at a premium to the rest of the market, but that hasn’t stopped them from rising 55 per cent over the past five years.
pf@thenational.ae
