Hello and welcome to the Morningstar series, "3 Stock Picks." I'm Emma Wall and I'm joined
today by Felix Wintle, Manager of the Neptune US Opportunities Fund.
Hi, Felix.
Hi, Emma.
So, what's the first stock you're highlighting today?
First stock is Starbucks. Starbucks we have owned now for many months – about 18 months
and this is the stock we really like. It fits – for us one of the most important attributes
in picking stocks at the moment is quality and it's a very high-quality stock. But there's
so much going on at Starbucks, it's not just a coffee retailer. It's really we feel a tech
company that sells coffee more than anything else.
As a matter of fact, you may be seeing soon in London they are going to be rolling out
their app strategy work which is a click and collect, so you get off the jeep, order your
coffee through the app, pay for it through the app and pick it up in store. They've rolled
that out already in some cities in the States and what's so ingenious about that is, it's
not about driving traffic to the stores. It's about processing that traffic quicker because
you're probably going to the store anyway, but now you're not queuing. So, it's just
a really nice problem to have. It's not about driving up the business; it's about processing
the business more efficiently.
But they have also so entrenched with the consumer. 40% of all transactions are done
on their loyalty cards and $18 billion sits on those loyalty cards in, if you like, prepaid
transactions. $18 billion is a big number and we talk about it being a tech company
that sells coffee; $18 billion is equal to the estimated revenue of Facebook this year.
So, it's a real – the barriers to entry are enormously high and it's a real monster
company which we think is going to be a real long-term winner.
What's the second stock?
Second stock is Under Armour. Under Armour make athletic wear, active wear and we like
this stock because we have a theme in the fund which is adjusting the millennials and
the millennials are now the biggest demographic group in the U.S., 90 million people, the
millennials are typically between 18 and 33 years old. And one of the key behaviors that
we're seeing in that group is towards health and wellness. Think about how many Fitbits
you see. The new Apple iWatch is all about heart monitoring and things like that. And
this fits into athletic wear.
Nike actually just had their results and they are obviously a direct competitor, just last
week, and huge order numbers, plus 17%. But Under Armour is much, much smaller. It's about
$3.5 billion of revenue, but growing really fast. They have done some really smart athletic
sponsorships; Jordon Spieth in golf, Steph Curry in basketball, Andy Murray in tennis
and is on a super high growth trajectory. So, they are growing the top-line at 25% CAGR
over the next three years which is pretty unheard of in apparel.
What's the third stock?
Third stock is Amazon. So, Amazon is a company I think probably we all sort of know or certainly
have used their online retail services before. But Amazon is really interesting right now
because they have – their real growth engine is Amazon Prime and Amazon Prime is, is a
service which costs you about just under $100 a year and it gives you next day delivery.
But also increasingly now it's giving you over-the-top streaming, so just like Netflix
basically, it's compared to the Netflix, but much, much earlier in its development.
So, Amazon Prime has about 10 million customers, but it's growing at 15% a year. Whereas Netflix
is fully penetrated in the States and is now growing international subs. But whereas Netflix
is just about streaming, Amazon is clearly streaming plus next day delivery, plus a free
Kindle Book, et cetera, there's a whole range of perks and incidentally, they are now just
rolling out Amazon Prime Now which is not next day delivery, it's this hour delivery,
it's next hour delivery. So, still getting sort of more premium and more premium.
So, Amazon Prime streaming hasn't got the brand that Netflix has or hasn't got the cash
heaven that Netflix has. Why? Well, they haven't really invested in content particularly successfully
thus far. But there's one deal that happened recently in the U.K. which I just think is
emblematic of where this company is going and that was the Top Gear deal. So, the Top
Gear team left the BBC and joined Amazon Prime and that for me just encapsulates in a nutshell
exactly where media is going and how media is consumed and I think Amazon is an absolute
winner in that space.
Felix, thank you very much.
Thank you.
This is Emma Wall for Morningstar. Thank you for watching.