Emma Wall: Hello and welcome to Morningstar. I'm Emma Wall and here with me today to give his two US stock picks is Stephen Moore, Manager of the Artemis U.S. Extended Alpha Fund. Hello Stephen.
Stephen Moore: Hi.
Wall: So what’s the first stock you are highlighting for us today?
Moore: Yeah. I'd like to talk about Comcast (CMCSA). Comcast is a provider of video as well as high speed data and telecommunication services in America. It's a company which is benefiting heavily for having those three products, which it uses to compete against other providers of telecommunication services. They are also engaged in transaction to buy Time Warner Cable (TMX) and the added scale and synergies associated with that transaction we think would be very powerful for generating free cash flow growth, something we focus very strongly on. And so the free cash flow growth and prospective returns to shareholders associated with that, we think are very good for Comcast.
Wall: How much is that U.S.-centric company. Because although the U.S. economy has been doing really well. Perhaps having only single country exposure is a geographical concentration risk.
Moore: There are risks associated with it, but risks that we very much like at this point. The fact that it has so much exposure to the U.S. economy and is entirely exposed to the U.S. economy is definitely we think a positive in this environment and we very much like it because it is somewhat of a staple. As you can imagine you know video services and high speed data services, telecommunication service is very much a staple for consumers.
But it does have the opportunity to benefit from growth in the economy unlike other staples. So the fact that the U.S. economy is growing above global western market GDP rate I think it is positive for the company, for the investment.
Wall: What's the second stock today?
Moore: Yeah. The second stock I'd like to talk about is big bad Apple. It's a stock which has obviously done extremely well and we still see opportunities with Apple (APPL). It's been a big position we've held for some time and the opportunities we see are centered around additional product sets. So, we have the iWatch coming next year as well as the prospect of margin expansion associated with the big lead they have in the smartphone market, in the iPad market. And so we see continued opportunities there.
Wall: I mean if you are in the U.K., you are in the U.S. you look around, pretty much everybody has an iPhone. I went to Singapore recently and my phone ran out of battery, it's an iPhone 5. I went into a shop and said do you have a charger, not a single shop did, because they only have Samsung over there. That is a big risk, is it not, that Samsung is taking much more of that global market, of the emerging markets, which is where most of the growth is.
Moore: I think that Samsung (005930) has done well in terms of generating market share. But the profitability of their handset business is substantially below Apple. And so in terms of continuing to drive market share, it is possible they can do that. But they are going to suffer more economic losses associated with that. And I am not sure what capacity they have to do that. So Apple in terms of its competitive positioning is very well positioned to compete against Samsung, including in the low end of the smartphone market.
Wall: Stephen, thank you very much.
Moore: Pleasure.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
