Emma Wall: Hello, and welcome to Morningstar. I'm Emma Wall and I'm joined today by Jake Robbins, Manager of the Premier Global Alpha Growth Fund to give his three stock picks.
Hi, Jake.
Jake Robbins: Good morning.
Wall: So what's the first company today?
Robbins: So the first company I'd like to talk about is Qorvo Technology (QRVO). So they are a U.S. component manufacturer, who supply filters basically for the likes of Apple, Samsung, Chinese telephone manufacturers. Now, the reason we like this stock is that as more and more devices become wireless, you need the kits that this company manufacture. As devices get more complicated, a 4G phone, for instance, needs 3 or 4 times as much components as a 3G phone did.
So we think because of the Internet of Things and the rise of wireless devices that company has very strong structural growth over the next five, 10, 20 years. However, valuations are extremely attractive currently because it’s been sold off heavily on concerns of A, Apple growth slowing, and B, China concerns where a lot of their growth came from. Now we just think that that's a bit of a short-term noise in the market and doesn’t change anything to do with their long-term growth prospects. And you can pick up these stocks on very low multiples currently despite that long-term growth.
Wall: And how dependent are they on a key client such as Apple (AAPL)? What if Apple suddenly pulled their contract?
Robbins: Well, Apple is a very large customer of themselves. It's extremely unlikely that Apple would pull a contract, because all of the design of each phone is built around the component manufacturer, so it's very difficult to replace them. But also they are market leaders in what they manufacture. So it's very difficult for a rival company to come with a competing product.
Wall: What's the second stock?
Robbins: The second stock I'd like to talk about is JP Morgan (JPM). Now, in the current market volatility, we've seen all financials get sold off extremely heavily, almost regardless of their fundamentals. Now, we like the U.S. because we think that relative to other parts of the world, it's economy is sound. We can see real wage growth and interest rates have actually started to rise, and we think once this volatility is pass, they will continue to do so over the next few years.
So, the fundamentals of that business look quite good. Valuations, however, have become again extremely attractive because of the market sell-off and selling off all financials when actually it's very unjustified in JPMorgan's case.
Wall: So picking out the quality wheat from the chaff there?
Robbins: I think so. All banks are being sort of thrown into the same basket of being undercapitalized at the moment and that's simply isn't the case of the U.S. banks – banking system is very well-capitalized and attractively valued.
Wall: What's the third and final stock?
Robbins: The third stock is Pandora (PNDORA), which is the high street retail chain of jewellery. Very interesting story because many years ago when it first came to the market, it was experiencing extremely strong growth. However, management tried to take the company's product up market and compete with Tiffanys rather than the current price points, which are a lot more affordable. That resulted in profit warning after profit warning and subsequently management have changed and gone back to the old staff.
Wall: Stuck to their knitting.
Robbins: They've stuck to their knitting. Actually, we've seen growth pick up extremely strongly over the last two or three years. However, because of the prior experience, the market is valuing that business at very low multiples despite its increasingly strong growth. So, if you look at Pandora relative to its peer groups like H&M or Inditex in Europe, Pandora is actually growing far faster than both of them put together, yet still trades at a significant discount and we think that's very attractive.
Wall: And the stores are always packed, aren't they, airport or high street?
Robbins: The stores are always packed and as long as that continues, it's a great investment.
Wall: Jake, thank you very much.
Robbins: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
