Hello, and welcome to Morningstar. I'm Emma Wall and joining me today to give her three
stock picks is Rachel Winter from Killik & Co. Hi, Rachel.
Good morning, Emma. Now, what's the first stock you'd like to
highlight today? Well, this week, we started to have a look
at UK equities. Clearly, they have been quite out of favour for quite some time with good
reason. People have been concerned about Brexit; they have been concerned about Jeremy Corbyn.
But there has been quite a large sell-off in UK stocks and now we do think some of them
are starting to look attractive. So, the FTSE 100 index, for example, now has a yield over
5%. So, I think, that does that show that there are some areas of real value in the
FTSE 100 index. So, first of all, we've been looking at Diageo
(DGE), huge international drinks giant, big focus on spirits and this is a company that
we think will continue to grow very strongly. So, in the UK, Diageo has a very large presence,
particularly in the gin market which is doing really, really well over here. Gordon's is
still the most popular gin in the UK and that's one that Diageo owns. Also, Tanqueray, we
are seeing very significant levels of growth there and it really doesn't feel as though
this kind of gin revolution is going to stop anytime soon. Also, they’ve got a presence
in tequila which is getting more popular and also, they do have quite a large presence
in the US as well. Also, emerging markets, I think there is a bit of a move there to
spirits. So, many areas around the world in which Diageo is expanding.
Now, some drinks firms have dipped their toe into emerging markets and been burnt because
tastes differ around the world. How successful has Diageo been in breaking the emerging markets?
So far, I think, very successful. Spirits are really starting to take off there. I think,
perhaps, western tastes are starting to take off there as well. But Diageo is so big, it
just has such a huge range of different spirits and different brands within each category
of spirits that I really do think they have something for everyone. For example, they
have been using lots of celebrity endorsements and you might have seen last year they purchased
George Clooney's tequila brand Casamigos. That's doing very well the world over. And
I think the fact that he was the face of it has actually helped to endorse that across
emerging markets as well. And what's the second stock you'd like to
highlight today? The second one is another FTSE 100 giant.
It's Legal & General (LGEN) which is a major financial services company. We like this because
it's so exposed to retirement products. It's involved in pensions. It's a huge investment
manager with nearly a trillion pounds worth of assets under management and also, it's
very large in the annuity space. Now, we like the fact that it's so exposed to pension because
people are living longer, and they are having to take more responsibility for their own
retirement. Nowadays, people have to put a certain percentage of their earnings into
a pension. They are going to have to look after that themselves and Legal & General,
I think, will benefit from the growth in this particular space.
And what's the third stock pick? The third stock is FTSE 250, it's still UK-based
and it's Cineworld (CINE). So, this is now, it's the second-largest cinema chain in the
world. Until last year, it was predominantly focused in the UK and it did have a presence
in Eastern Europe. But last year, it made a huge acquisition. It bought Regal Entertainment
which was a US cinema chain, and that has allowed the business to expand significantly
overseas. And I think at the time there was some real concern about the huge size of this
acquisition. But the evidence we've seen so far does imply that so far it is going very
well. They have seen a lot of cost synergies in the acquisition that they made.
And what makes us particularly positive is the fact that we have got a huge number of
very exciting films coming out over the next couple of years. So, for example, we've got
these Disney remakes, we've got the real-life version of the Lion King, we've got Mulan,
we've got Aladdin. We've also got some more Marvel films. We've got another Star Wars
film. So, I think, there is quite a lot for the cinema industry to look forward to.
And do people still go to the cinema? I would have thought with the rise of home entertainment
services such as Netflix that there simply just weren't enough cinema goers to support
this kind of stock? There are. And I agree, it's quite surprising.
You would have thought that perhaps cinemas would have lost out to things like Netflix.
But at the moment, particularly in the US we are seeing that people really do enjoy
the experience of going to the cinema. And I think Cineworld has really taken advantage
of that by really upgrading a lot of its screens, it has invested quite heavily in 3D and IMAX
screens and I think people are willing to pay to have that experience which is far above
what you can get from sitting on your sofa at home watching Netflix on your laptop.
Rachel, thank you very much. You're welcome.
This is Emma Wall for Morningstar. Thank you for watching.