Hello and welcome to Morningstar. I'm Emma Wall and I am joined today by Rachel Winter
from Killik & Co. to give her three stock picks.
Hi Rachel. Good morning Emma.
So, what's the first stock you'd like to highlight today?
First one is a company called Teradyne (TER). This is an American company and it's involved
with cobots, collaborative robots. So, we think that’s probably one of the big buzz
words of the year. So, I think it's quite widely acknowledged we are on the cusp of
the fourth industrial revolution. So, the first one probably back in 18th century when
hand manufacturing techniques were replaced by steam machines.
Then we had electricity coming along. Then we had the digital revolution. So, computing
and the internet and the next one where we started to involve automation, artificial
intelligence and more computing and robotics. So that’s why we started looking at robotics.
Now Teradyne is actually a business that’s been involved in testing semiconductors and
at the moment that’s still the major part of the business and its still very important
as we start to use more complex chips in our laptops, in our phones. But why we like it
now is in 2015 they bought a business called Universal Robots and that’s heavily involved
cobots and at the moment it has over a 50% market share in the cobot space.
Last year the revenue from that division was up 70% and they think they can achieve over
50% growth per year up out to 2021. So huge growth potential here and we think this cobot
division will become increasingly important for Teradyne.
Now each of these revolutions there were winners, big, big winners that went on to dominate
the market for nearly centuries after industrial revolution. But there were also losers particularly
thinking of the dotcom bubble bursting. How do you identify a company that’s going to
thrive in this new AI environment and one that is just an upstart start-up?
Well I think having over 50% market share at the moment and I think having such impressive
sales growth does give you an indicator that this is hopefully one of the successful ones.
And back to your earlier point I think having a lot of losers from each industrial revolution
I think it's quite important to look at that. And what's quite nice about Teradyne is they
are focusing on cobot. So, humans working alongside robots.
So, you are not necessarily getting rid of loads of jobs you are actually just getting
robots to help with more difficult and more time consuming or the more repetitive tasks
and you have still got a lot of humans employed so that’s one of the reason why we like
it. And what’s the second stock today?
Second one is IBM (IBM). It's one of the biggest technology companies in the world and this
is one that we think is a little bit misunderstood. So, it's very much seen as an old school hardware
manufacturing business and it trades on price to earnings multiple of 10 times. That’s
incredibly low. Very cheap compared to other tech stocks.
Yeah, and the market in general trades at probably about 16 times and then some of the
bigger tech companies are on 20 or 30 times. So, being on 10 times very low indeed. And
that’s the sort of multiple you'd expect from a low growth standard hardware manufacturing
company. That’s not IBM. Over the last few years they've been selling
off their hardware businesses, they have invested in what they called strategic imperatives.
And that’s things like analytics, cybersecurity, cloud computing, artificial intelligence and
now revenue from that part of the business is worth more than 50% of their overall revenue.
So, in our view IBM is no longer just a hardware manufacturer and we very much think it's undervalued.
And what’s the third and final stock. Third one is Match Group (MTCH), which I think
is quite an interesting one. So, this is involved online dating which is very much a high growth
area. Now Match owns about 45 different dating brands. It's really a huge number. And that
includes the most well-known ones like Match.com and particularly Tinder. So, we think this
is a space that is growing very quickly particularly as it becomes more widely accepted and people
become more comfortable with it. So, starting with Tinder that’s done very
well from the so-called freemium model, where the standard fashion is free to download and
then they can charge users for extra features. And Tinder's got more than 50 million daily
active users. It's an incredibly popular app. And then another high growth area for Match
is actually the over 50s dating market. So, this is a market where people are perhaps
are more willing and more able to pay. So, where there might be less users in this particular
segment they do tend to pay a lot more so that has been quite profitable for Match over
the last couple of years. Now there have been some quite high-profile
companies who have been hit by data breaches. I imagine Match is one of those ones who would
have to take that incredibly seriously given the nature of their business. Is that something
that you consider when analysing the stock. It definitely is. So, any technology company,
any company involved in handling people's data particularly sensitive data such as people's
dating profiles. I think it's very important to look at that and I think Match is very
heavily involved in looking at their own cybersecurity. Rachel, thank you very much.
You are welcome. This is Emma Wall from Morningstar. Thank
you for watching.