Liontrust Asset Management portfolio manager Storm Uru has pointed out three companies that he thinks have “fallen behind,” but have since updated their business strategies to improve their industry competitiveness.
On Friday, Uru said that he liked oil company BP, contract caterer Compass Group, and credit card company American Express.
“Initially, they were kind of left behind, and they were going to find it very difficult to compete” with newer upstarts, according to Uru. However, he stated that these companies had been “working very hard” over the last couple of years to pivot their business models and that they were “starting to become more competitive” in their respective sectors.
Uru owns all three stocks through his co-managed Liontrust Global Dividend fund. American Express is also a holding in the Liontrust Global Equity fund, which he co-manages.
BP
In the case of BP, Uru stated that the oil company had done a “very good job of outlining a very good way forward for the company in a low carbon intensity economy.”
Nonetheless, he stated that BP must maintain its target of a return on capital investments in renewable energy of between 8% and 10%.
Furthermore, Uru stated that one of the reasons Liontrust preferred BP over other companies in the same sector was that it was willing to sell “underperforming assets,” which the firm had not seen from other oil and gas conglomerates.
Uru noted that Exxon Mobil, for example, had only recently begun to consider pledging to reduce its carbon emissions to net zero by 2050 — “so there are a lot of companies who are well behind the curve,” he said.
Uru went on to say that BP’s problems over the last decade had been “well documented,” giving the company the “mandate to start with a blank slate, which is what we like about the company.”
The Compass Group
Previously, Uru stated that Compass Group had tended to cater only to larger companies with more than 300 employees in order to ensure sufficient scale to be profitable on those contracts.
However, over the last two years, he said Compass has begun to pivot its business to serve smaller companies, pointing out that 45 percent of firms in the United States had fewer than 300 employees.
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Compass has set up dark kitchens in major cities, which are workspaces for restaurants to produce food offsite for delivery only. Last year, Compass launched its own click-and-collect app, “Time2Eat,” and acquired food tech start-up Feedr.
Compass, according to Uru, has partnered with Deliveroo to deliver meals to smaller offices in addition to having its own logistics delivery staff.
“So they’ve simply changed who they can service and provided a whole range of new services to a new cohort of customers,” Uru explained, making the company “incredibly appealing.”
The American Express Company
According to Uru, American Express previously struggled to compete with its main rivals Visa and Mastercard because more retailers accepted their credit cards.
He did, however, say that American Express has been pursuing a “aggressive strategy to acquire more merchants” over the last three years.
In fact, Amex reported that Generation Z and millennial cardholders, as well as small business customers, accounted for the majority of its spending growth in the second quarter.
Uru stated that this demonstrated Amex’s “great uptake” of new customers, and that the results showed that this new cohort was spending on leisure and travel.
He said this was even before international travel had really opened up again with the easing of coronavirus public health restrictions, implying that this was a good sign for Amex, which still relies heavily on travel and leisure spending.
JP Morgan stock picks
“There are reasons to be on our toes in August/September,”. “July came in below expectations on some macro metrics,” they added, “but within a landscape that still suggests 2021 will be a year of strong real GDP growth and rising inflation, which should help corporate margins recover from last year’s 15-year lows.”
“As we head into August, we continue to be cautious given our view that activity levels may disappoint as a result of the restrictions imposed by several countries in response to the recent spike in new COVID-19 cases,” the analysts wrote.
“We continue to see 2021 as a stockpicker’s year… some stocks appear overpriced, while others continue to offer plenty of upside!”
The bank launched its “Growth Bargains”. The stocks also have a trailing price-to-earnings (P/E) ratio that is at least 20% lower than the regional industry average, which analysts use to identify potential market bargains. All of the companies chosen are small to medium-sized.
Here is a list of JPMorgan’s bargain stocks, all of which are on the bank’s shortlist of “high-conviction” ideas and are rated overweight.
Centrica, a British energy firm, was described by JPMorgan as “cheap despite many pos [positive] drivers,” including new management, the reinstatement of dividend payments, and the benefit of rising commodity prices.
According to the bank, oil, gas, and marketing firm DCC is trading at a discount to the rest of the small to mid-sized market.
JPMorgan expects car sales to increase as the economy recovers, so auto wholesaler Inchcape has a “good” free cashflow yield and a “compelling theme.” According to the analysts, the stock is trading at a “significant discount” to the rest of the market.
Steel company Acerinox has the strongest balance sheet “in recent history,” according to analysts, who also like its “consistent” free cashflow generation and exposure to the United States’ economic recovery plan.
According to JPMorgan, Maisons du Monde is “down big from highs and trading at a big discount.” According to the bank, the company is also benefiting from a focus on home improvement during the pandemic.
According to the analysts, cloud computing firm SoftwareOne has a “solid balance sheet” and a “below-average valuation.”
Simplo Technology, a Taiwanese battery maker, has “undemanding” valuations “despite [a] solid growth story,” as well as a rising dividend yield and “attractive” growth areas such as electric bikes, according to the bank.
According to the analysts, Indonesian media company Media Nusantara Citra has a “very solid balance sheet” as well as “solid” fundamentals such as growth in digital advertising and a record high market share.
