Welcome to Morningstar. With me today in the studio is Berenberg's Head of Investments,
Matthias Born. He is also the Lead Portfolio Manager of the European Focus Fund. Today,
we're talking stock picks, and Matthias has got three picks for us from his fund.
What's the first stock you're going to choose for me, Matthias?
Infineon is the leading power semiconductor and sensor company globally.
They are in automotive and industrial markets. They benefit from certain structural trends in
end markets, like for example, e-mobility, but also renewable energy, which is I think now
an area which is even more pushed by the current situation,
especially in Europe. And we know that Germany anyways investing a lot to make energy transition
happening but also other countries pushing it. But now that push is even going further.
The company has high entry barriers due to strong technologies in place and the scale they have.
The products in general help to reduce fuel consumption in cars and emissions,
but also, on the other side, increase safety. So, therefore,
there's a strong need for these products. They have stable margins, high margins of roughly 20%.
And also, they are very innovative because they are investing in new technologies,
for example, new technologies in the semiconductor area like gallium nitride,
which is helping to get battery life even longer and also helping for faster charging processes.
So, therefore, there's also a lot of innovation happening over the next couple of years.
Sure, thanks. I mean, semiconductor space is a very popular one, but it's a very competitive one.
How can Infineon maintain its competitive position with the likes of Taiwan Semiconductor
and NVIDIA and all the other sort of semiconductor companies?
Yeah, for sure, they are in a special niche which is the power semiconductor market.
They have a high market share there. They are by far the number one in that area. The
leading position, how can they defend it? They can defend it through new technologies being in place,
but also, they can defend it through scaling up. Scale is very important, being also a cost leader
here besides being an innovation leader. And therefore, this is helping them from
new competition coming into that space over the next couple of years. And that also
has been seen over the last years already because their margins have been even creeping up a bit
and also their returns on capital employed are quite strong, and that's a good signal that the
competitive environment overall is quite healthy. Super. Thanks very much. And what's
your second stock today, please? Second stock is Novo Nordisk. Novo Nordisk is a
pharmaceutical company from Denmark. They are one of the highest-quality and highest-growth
pharma companies in Europe. From our perspective, they are also an innovation leader.
There are two areas they are serving right now. One is the diabetes market.
The diabetes market is today an oligopoly. It's a very consolidated market. There's Novo Nordisk and
Eli Lilly on the other side. Insulin for the diabetes market, the product, which is used there
for patients, is not a high-growth market anymore. But through innovation, for example, Novo Nordisk
is working on weekly insulins coming from daily insulins. That would be a big step for patients.
And therefore, through that innovation they can take even more market shares in that market.
Sure. And there is the obesity market.
The obesity market is a market where 650 million people globally are affected by obesity. And the
aim there is to substitute, for example, invasive procedures, while anyway only 2%, 3% of obesity
is treated today. And the Novo products, they can help to reduce weight by roughly 25%.
And the reason to do that is because of the fact that obesity is the cause of many
other very severe diseases. And therefore,
to fight obesity is a very urgent topic in the healthcare industry and for patients overall
and healthcare systems, because there's a high cost burden also for the healthcare systems in
general. And that is serving another growth pillar for Novo Nordisk over the next couple of years.
Sure. That makes sense. There's certainly a link between obesity and diabetes as well. So,
these trends are likely to be ongoing in the long term in the Western world
and also in the developing world as well. Yes, that's true because it's – obesity
is then causing diabetes. So, therefore, as you said, it's very much linked together,
and that's also the reason why the company has been pushing into that segment over the last
couple of years. And I think also in diabetes, still there is growth left because there are still
only roughly 50% of patients only treated globally. And therefore, in emerging markets,
for example, also more and more patients are also getting treated today for diabetes.
Sure. Thanks very much. And what's your final stock today, Matthias? The final stock today is
Straumann. Straumann is a Swiss company. They are operating in the dental implant market,
a market that is driven also by demographics, people getting older, therefore
the older you get, for sure, the more dental implants are potentially needed and therefore
the demand is driven by these underlying drivers. On top of that, the 15% growth rates the company
has been achieving and will most likely achieve over the next (indiscernible) in terms of
revenue growth are also underpinned by again strong innovation in place.
They take market shares by being very innovative, bringing new dental implants into the market
and therefore, taking more market share. Quality of the product and service is a
very important driver, also, for the dentists, which are using the products. And therefore,
this is also serving for some very healthy market share gains over the next couple of years.
Sure. There're also a vanity element to it as well. The Instagram generation, for example,
would be more keen in having good teeth and good healthy looking white teeth. Is that part of it?
Yeah, agreed, and that's what I wanted to say. The second growth pillar is the clear aligner market,
I would say, addressing that driver that you mentioned also a bit, I would say. And the
clear aligner market is a younger market compared to the dental implant market,
but Straumann was also going into that clear aligner market which is for correcting your teeth,
and that market is also growing quite fast. Straumann has been going into that
through an acquisition, and from that has been growing that space quite strongly over the last
couple of years already. There's still huge growth potential left for the next year. So,
therefore, also that part of the company will grow quite strongly over the next years.
Super. Thanks very much for your stock picks today, Matthias, and thank you for your time.
For Morningstar, I'm James Gard.