Hello and welcome to Morningstar.
I'm Emma Wall and I'm joined today by Jeremy Podger, Manager of Fidelity Global Special
Situations Fund, to give his three stock picks.
Hi, Jeremy.
Hello.
So, what's the first stock today?
Well, the first stock is Delhaize (DELB).
This is a corporate change situation.
I could equally easily have given you Ahold.
These are two European-based food retail companies, Delhaize based in Belgium, Ahold in the Netherlands.
They are coming together in a merger and this will realise some very profound synergies.
Ahold, for example, has fantastic buying power in the Netherlands, so this can be translated
across their European operations.
But they will have very substantial complementary operations in the U.S. as well and I think
if they realize just half of the synergies that they are aiming for in this deal that
can potentially raise the earnings base of the combined company by about 20% over the
next three years.
Food retailers in the U.K. have not done very well over the last five years, in particular,
Tesco with its accounting scandal and indeed, the big names being undercut by the discounters.
What's the market in Europe like?
Well, you're starting from really a very, very different base.
The Europeans have been living with the hard discounters for longer than the U.K. has.
They have naturally a lower margin level than the U.K. food retailers used to have.
So, I think the dynamic of the market is very, very different.
These are two very conservative, traditionally conservative players.
But that's also not to take away from what they have done in the States where they have
seen decent margin progression and I think this combination could lead to something even
better.
What's the second stock today?
Well, the second stock, which falls in the exceptional value category, is actually one
from Japan.
We found a lot of value-type of stocks in Japan over the past three to four years.
This one is Yamaha Motors (7272).
It may be known to most people as producers of motorcycles, but the bedrock for the company
actually is outboard motors for boats and here they enjoy a very, very strong position.
They have fantastic margins.
And the value opportunity, if you like, in Yamaha is in the motorcycle business where
they have depressed demand in developed markets currently and depressed margins in emerging
markets, for example, Indonesia which is particularly important.
So, as things stand, I mean, the stock having performed actually quite poorly over the past
three months or so, trades on a forecast P/E multiple which is about half of the Japanese
multiple.
Japanese multiple itself is now currently depressed against the rest of the world.
So, it looks good for long-term growth?
Certainly, there is the opportunity as they increase those margins in motorbikes.
What's the third and final stock?
Well, the third one is in fact our largest holding within that unique business category
and this is Alphabet or Google (GOOGL) as most people know it.
A bit controversial because it's done so well for so long, a lot of people would say it
looks a bit toppy.
Well, I think actually the market was waiting for a sign that Google – all the investment
that Google has been making in all the new ventures, I mean, it is a tremendously innovative
company.
The market has been waiting for some indication that they can actually rebuild margins in
their core business and the growth is on track.
We had a new Senior Executive in place to try and address the financial issues middle
of last year.
The stock responded positively to that.
And the most recent results that we've seen have seen actually acceleration in the core
business.
Really amazing growth – that core business being the search-based revenues – amazing
growth in YouTube and YouTube watching.
This is totally new form of media and also great growth in Android-based revenues as
well because they run the Android mobile system.
Then that's not to mention all the options that they have in the various other areas
that they are investing in now.
So, still further to go?
It's on a – not a sky-high multiple for a revenue growth rate that should be at least
in the high-teens for the next few years.
Jeremy, thank you very much.
Thank you.
This is Emma Wall for Morningstar.
Thank you for watching.