Emma Wall: Hello and welcome to Morningstar. I'm Emma Wall and here with me today to give his three stock picks is Charlie Thomas, Manager of the Jupiter Ecology Fund.
Hello Charlie.
Charlie Thomas: Hi.
Wall: So, what's the first stock you have for us today?
Thomas: The first stock is a recent, relatively recent addition to the portfolio, a company called, First Solar based in the U.S. Now, the reason we're interested in First Solar (FSLR) is primarily because it's one of the world leaders in solar technology and we believe there is a really interesting opportunity around the company and in terms of its technology and to improve the efficiency in solar technology going forward over the next two to three years. I think that would represent if they get it right a really interesting entry point at this juncture and a good investment perhaps through the kind of three to four-year timeframe.
Wall: In the U.K. I know that a lot of sort of solar chat became less positive when we talked about the benefits being cut. How reliant on subsidies from the government is the U.S. solar market?
Thomas: The U.S. is still dependent on it, although at a decreasing rate. That is our expectation. But it's not just the U.S. market. You've got to understand there are a lot of markets outside of North America and Europe. So, let me give you some examples in South America or indeed in South Africa where actually solar is competitive with grid electricity today without subsidies and actually those represent the really exciting markets for many of these technologies.
Wall: What's the second stock?
Thomas: The second one is slightly different, again our largest – actually, our largest holding in the portfolio, a company called, United Natural Foods (UNFI). Now, they are the leading distributor of organic foods in the U.S. market. Now, what's very interesting is actually to see the growth in the U.S. market in this sector. We've actually seen round about 11% compound annual growth rates in the organic food sector in the U.S. over the last 10 years. This is a really interesting structural shift because what we are recognizing is, particularly the U.S. market is beginning much more focused on the quality of food that they are consuming and this drives companies like UNFI which distribute that food around all the specialised supermarkets as well as the non-specialized supermarkets.
Wall: I was having a chat with somebody the other day about the way that Coca-Cola has been forced to open itself up to this market. Coca-Cola Life is a new organic Coca-Cola, it tastes a bit funny in my view, but there you go. How much risk is there that the Americans embracing organic food, it's just a fad though, how do we know it's not going to go away in a couple of years?
Thomas: Well, what we've seen is actually the trends are being quite strong for a number of years now. Round about 10 to 12 years now we've seen a very consistent growth story, but we've also got to understand that this is also at its infancy. So, in terms of dollars spent on organic food in the U.S. market, it represents about 4% to 5%. So, it's very small part of the basket and actually, that in itself is very optimistic for us because it shows that there is still substantial amount of growth to go for before perhaps the market starts to get saturated.
Wall: What's your third and final stock?
Thomas: The third one is very much a play on pollution, particularly air quality pollution and that is a company called, Johnson Matthey (JMAT), which is a U.K.-based FTSE 100 company actually and they have a very strong presence, particularly in the what they call the auto cats or the automobile catalytic converters which helps to reduce the particulars coming out vehicles. Now, as we see with the rhetoric around China and their declaration on pollution, this is about improving the local air quality. Improving local air quality is really paramount to them doing that and they are set to benefit particularly with their exposure into the larger trucks from that trend which we believe is going to be a multi-year trend.
Wall: Looking at the macro for China, it's pretty divided on how it's going to go. Some people are still predicting there is going to be a crash landing. Things aren't going to be very positive. How reliant on that market is this company for revenues?
Thomas: Yes, it's reliant, but it's also exposed to many other countries. But if you just take that issue alone, actually what the Chinese need to do is improve the quality, air quality. So, actually, we're a long way from regardless of the growth in the market, we've still got to have many more cities actually pertain greater restrictions about air quality. So, actually, it's very much regulation driven which we think will make it probably more defensible in the market which perhaps might be a little bit more flakey in the short-term.
Wall: Charlie, thank you very much.
Thomas: Thank you very much.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
