Welcome to Morningstar's 3 Stock Picks. I'm Holly Black. With me is Rachel Winter. She
is an Investment Director at Killik & Co. Hello.
Hi, Holly. So, I feel like your monthly virtual visit
to us is a good barometer of where we are at in this whole pandemic. And considering
where we were a month ago, markets are quite jubilant. So, you are finding three stocks
picks within that. Where would you like to start?
Yeah, you are right. It's surprising how high markets are at the moment and it's almost
becoming quite difficult to pick stocks that we think still are trading at attractive levels.
But the first one we are looking at today is a company called Newmont Mining which is
the biggest gold mining company in the world and it's the only gold mining company in the
S&P 500. Why do we like it? Well, gold has come up
over 30% over the last year. It's now trading over $1,700 an ounce and that means that gold
mining companies are profitable at these levels. And why has gold come up? Well, firstly, it's
a safe haven. A lot of investors like to buy gold when they are worried about equity markets
and when the equity markets have been particularly volatile. But gold is also a very good protection
against inflation. And while we haven't got inflation at the moment and it's unlikely
we'll have an inflation in the short term, if we look over the longer term, because central
banks have been printing so much new money and pumping that into the markets to help
support the economy, a lot of investors believe that that printing of money will lead to inflation
over the longer term. And that's one reason why people have been buying gold.
But gold can also fall in price when people are feeling more optimistic. So, if this stock
market recovery continues, does that affect their outlook?
Difficult to say. But I think you could have a situation where you have the stock market
recovery continuing but also you have inflation as well. And I think as long as inflation
remains high, that would be a positive for the gold price. And also, I think a lot of
these gold mining companies are very profitable when gold is at $1,200 an ounce. So, we have
got a lot of margin there for gold to fall a bit and for these companies still to remain
profitable. Okay. What's stock number two?
Second one is Nike which is the biggest sportswear company in the world. Sportswear has been
quite a trend over the last few years, but it's really accelerated during lockdown because
exercise is one of the freedoms that we've had. So, people really have taken advantage
of that. And I think a lot of sportswear companies have actually done quite well. Nike in particular
has done well, firstly, because it's got a very good online community through all of
its fitness apps. So, it's kind of used those apps to reach out to its current community
and help it to sell more products. And also, this lockdown has helped Nike to kind of accelerate
its current strategy which was always to sell more things online. So, historically, Nike
has sold a lot of items through third party retailers and department stores and it has
always wanted to sell more things online. So, it can sell directly to consumers and
take all that profit margin for itself. And this lockdown has really forced people to
buy more online. So, it's actually been very good for Nike.
And what's the distribution of a company like Nike? Do they fulfill that for themselves
or do they farm that out to someone else? They do a lot of it themselves and they are
starting to do more of it themselves. And actually, one other thing that's really benefited
them is all the automation they use in their factories. And so, their factories are no
longer as people focused as they were in the fast and having all that automation has actually
really helped them to deliver the product that they need to deliver during this lockdown
period. Okay. And what is our final stock?
Final one is a Japanese company called Keyence. And actually, it almost relates to Nike because
it is a company that provides factory automation. So, at the moment, with all this difficulty
between China and the rest of the world because of the coronavirus, we feel it's quite likely
that a lot of companies will want to remove their supply chains in their factories from
China and they would probably want to move their supply chains to more developed countries
or economies and in those countries you're likely to have higher wages. So, we think
it's quite likely that within these new factories in these countries companies will want to
take more advantage of automation, so they don't have to pay as many wages. So, Keyence
is a world leader in factory automation, and we think the demand for this is going to increase
as companies look to change their supply chains. Yeah. So, this is a trend that has been growing
but there is kind of some tension there because people think, oh, you know, robo is stealing
my job. So, is this a sort of situation where coronavirus accelerates an existing trend?
I think sadly it is. And obviously, the loss of jobs is a key concern here. But I think
if you think of companies like Amazon, they are very heavily criticised for the poor treatments
of workers within their factories and sadly, for the jobs market I think probably the easier
solution for Amazon is to automate more of their factories so treating those employees
isn't such a concern for them. Rachel, thank you so much for your time. For
Morningstar, I'm Holly Black.