Emma Wall: Hello, and welcome to Morningstar. I'm Emma Wall and I'm joined today by Rachel Winter from Killik & Co to give her three stock picks.
Hello, Rachel.
Rachel Winter: Good morning, Emma.
Wall: So, what is the first stock you'd like to highlight today?
Winter: So, the first one is Prudential, which is a global life insurance and asset management company. It's quite topical at the moment because we've had the Prudential RideLondon over the weekend. Say, 25,000 cyclists going through London, all sponsored by Prudential. So, as a stock we like it because it's U.K.-listed but earns a lot of its revenues overseas. So, we're not particularly positive on the U.K. economy at the moment.
So, we like companies that do earn revenue from other places. So, Prudential, it's huge in life insurance and huge in asset management. What we like is that 20% of its revenue comes from Asia and that part of the business is growing incredibly quickly. And for that reason, we think that Prudential is quite undervalued because it has got really huge growth prospects. So, over in Asia there is an expanding middle class. People are starting to spend more money on insurance and also on savings as well. So, I think that really does give Prudential a huge amount of room to grow.
Wall: And what about the second stock?
Winter: Second one is Visa. So, this is a global payments company, listed in the U.S. and it really does have a duopoly with MasterCard outside of China. So, that gives it a lot of control over pricing power. The reason we like it is that people are starting to use a lot less cash. So, if I think about myself, even if I go to Sainsbury's and spend 9p on a banana or something, I put it on my cards. Every time I use my cards, Visa earns a fee. So, for that reason and because the world is going in that direction, we think that Visa will start to earn lots more money over the next few years.
Wall: And how global is that stock, because you talked about the benefits Prudential about having a globally diversified revenue stream, what about Visa?
Winter: Incredibly global. So, it has a presence in every market. It's listed in the U.S. and that is its home market, but it does have a presence in every country in the world.
Wall: And what about the third and final stock?
Winter: Third and final stock is Antofagasta. It's a global copper mining company. The reason we like this is because of the move to electric vehicles. So, you might have seen last week the government said that by 2040 they didn't want any new car sales to involve petrol or diesel.
We think that by 2030, we think that 25% of new car sales will be electric cars. And if we look at what goes into electric cars, they involve about 75 kilograms of copper per car. Petrol cars involve about 25 kilos. So, because of that we think there will be a huge increase in demand for copper over the next few years. So, that's why we like Antofagasta. So, for that company, 83% of its revenues do come from copper mining.
Wall: And the commodity stocks have been rather beaten up in recent years. How do you sort the weak from the chaff? How do we know that Antofagasta is one of the good guys and not one of the companies who is actually going to have continued troubles because of their links to the commodities market?
Winter: So, firstly, you have to look at what they are actually mining and what the demand is for that commodity. So, for Antofagasta, as I said, they earn 83% of revenue from copper and that is a commodity for which we think there will be a continued demand. So, as I said, it's used in electric cars and also in the continued electrification of emerging markets. So, that's a huge demand increase there. And also, it does have much lower debt than many of its competitors. So, that's another positive as well.
Wall: Rachel, thank you very much.
Winter: You're welcome.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
