Emma Wall: Hello and welcome to Morningstar. I am Emma Wall and I’m joined today by Graham Campbell to give his three stock picks, manager of the Saracen Global Income and Growth Fund.
Hi, Graham.
Graham Campbell: Good morning.
Wall: So, what’s the first stock you’d like to highlight?
Campbell: The first stock I’d like to highlight is Saint-Gobain (SGO), which is a French domicile company, but is a manufacturer and distributor of building products, flat glass and some other high-performance materials. The reason why we like Saint-Gobain is that over the last say, four years or five years, the business has substantially reduced its cost base.
Taken right over €4 billion out of its cost base. Its sales are currently around 20% below where they were at the previous peak and margin is around 25% below. So, any pick up in sales will fall straight to the bottom line and we expect sort of strong growth in earnings and also dividends over the next five years.
Wall: And what’s the second stock today?
Campbell: Second stock, we’re very favorable disposed towards pharmaceutical sector, because demand for pharmaceutical products depends on very much on aging populations. And as we all know, as we become older we require things for example; diabetes, eye care, hips, knees, and the company we pretty like is Novartis (NOVN), which is in three businesses.
One is eye care. Secondly, it is one of the biggest manufacturers of generic pharmaceuticals and lastly it has pharmaceutical business. And this whole sector has been out of favour because of concerns over U.S. pricing and with the election. But we feel that the long-term prospects are actually very attractive and with the yield approaching 4% and strong energy over the next five years, the share is very cheap.
Wall: And no Hillary Clinton coming in and bashing down those pharmaceuticals anymore.
Campbell: I think there’s issues with major pharmaceutical stocks if the drug doesn’t produce a meaningful benefit. But when things like eye care for example, or for some other drugs that will improve length of life and there is a strong growing market and pharma sales typically grew more than GDP in every economy.
Wall: And what’s the third stock today?
Campbell: The last stock is a sector that’s probably the most out of favour anywhere, which is in banking. And before we invest in any bank we want to make sure three things are in place. One is they have clearly enough capital. Secondly, we must believe the numbers and that means more than just the ECB stress test. And lastly, the management must have fundamentally changed. And the business I’m looking at is UBS, which we hold, a large holding in the fund.
And UBS (UBS) has transformed from an investment bank into much more of an asset management business and wealth management business. So much so that the investment bank is not only a third of sales. So, the business as it moves forward, reduces its course, it will require less capital and more of their capital will come back to shareholders we hope over the next three years or four years with the yield of almost 4% treating your own book value we think is very cheap.
Wall: Graham, thank you very much.
Campbell: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
