Holly Black: Welcome to the Morningstar Series “3 Stock Picks”. I'm Holly Black with me is Rachel Winter, she's Investment Director at Killik & Co. Hello.
Rachel Winter: Hi, Holly.
Black: So last time we saw you, we were kind of in the middle of this market meltdown. I think things have calmed down a little bit since then. So your job is to find us some stocks that might be worth buying, where would you like to start?
Winter: Absolutely. So at the moment, we're really trying to think about how the world could be different after this lockdown ends. And we're really trying to think of companies that could potentially benefit from this. And so last time we spoke, I think we talked about working from home, online deliveries, online payments, and this time, we're very much looking at hygiene. And so we think now and after the lockdown ends, we think there'll be a very much increased focus on hygiene and therefore we're looking at companies that could potentially benefit from this.
And so the first one is a big US company called Ecolab. Not very much a household name it’s a $55 billion company. So they are supplying huge number of corporate businesses all around the world, and what they're doing, what their mission statement is, is providing clean water, safe food, and hygiene. And I think that's something that will be very much in demand after this lockdown ends. And I've actually just been looking at an update they put out for how they're dealing with the life after coronavirus. And they've multiplied the amount of sanitizer they're producing by five times. And they're also offering training on sanitization. And I think both of those things will continue to be very much in demand over the next few years.
Black: Do you think this is one of those things where, we are washing our hands and singing happy birthday at the moment, but when things start to ease off, we'll quickly fall out of those good habits. I mean, still washing our hands for sure, but maybe not singing.
Winter: I don't think so. I think probably the levels of demand for sanitizer and things like that will decline slightly from where they are now, but I still think they’ll remain much higher than they were pre-coronavirus. I think the fact that we've been in lockdown for so long we've got into the habits of using the sanitiser, cleaning our surfaces so much more often than we were before. I think there will be an increasing demand in the future, particularly for companies. I wouldn't be surprised to see new regulations that require companies or businesses to have some sort of sanitisation officer. And I think demand there for these sort of products and services will be higher definitely.
Black: Okay, and what is our second stock today?
Winter: So Ecolab looks very much at corporate businesses. The one that works with individuals is Reckitt Benckiser. So this is a big UK company that develops a lot of well known brands like that Dettol and Harpic, Cillit Bang. And again, we think that individuals will be increasingly focused on their own personal hygiene, and we think this will continue after this lockdown ends.
Black: Isn't there a limit to how much Dettol can be sold though, there's only so much I can go through in my own household before, probably reaching some kind of bleach safety limit.
Winter: That's true, but I think the amounts that people are using will still continue to be higher than what they were pre-coronavirus and I certainly know that in my household, I'm definitely cleaning my kitchen surfaces a lot more vigorously. And I'm probably being a lot more generous with the Dettol than I was before. And I think that's probably the case across the country. And so I think that's definitely a good thing for Reckitt Benckiser. Also, the company has recently got a new Chief Executive. The last five years have not been particularly good for Reckitt. They've made a couple of poor acquisitions. Now they've got this new Chief Executive he is very highly regarded. And he seems to be making some very sensible decisions about where to take the company. And so I think now it’s quite a good time to buy in, while the share price is still quite low.
Black: I guess one of the benefits as well is with those strong brands, people do tend to gravitate towards those because they think they can trust it. What's our final stock?
Winter: Third one is a company called Thermo Fisher. So this is a US life sciences equipment maker. One of the reasons we like them right now is that they're very heavily involved in producing testing kits for coronavirus. So for example, they've just signed a deal with the UK to provide them with enough testing kits to do the 100,000 tests a day that we want to do. And so Thermo Fisher will I think, obviously do very well from this, but looking at longer term the company is also involved in making equipment for laboratories. And I think this is a less risky way to play the healthcare market than by buying into the companies that are actually trying to discover drugs. So, if we think at the moment loads of companies are trying to discover or develop a vaccine for Covid-19 whereas Thermo Fisher is simply supplying all of these companies with the equipment they need to conduct their development and their trials. So no matter what happens, no matter who discovers it, Thermo Fisher is the one that's winning.
Black: And is that another area where a sticky customer base comes into play, because if they can reliably deliver those kits or the equipment for it with something as serious as coronavirus. You don't want to suddenly try a new supplier.
Winter: Absolutely. And I think Thermo Fisher is a very trusted name, and it will do well because of that. And I think in terms of supplying laboratory equipment. It is again a very trusted supplier. And it's constantly upgrading the products that it's making. And so it has a very good relationship with its suppliers. They're spending a lot on their equipment they're buying from Thermo Fisher. Every two or three years, they're almost forced to upgrade to something much more expensive because the technology has improved so much and they want to have the latest equipment.
Black: Rachel, thank you so much for your time. For Morningstar I'm Holly Black.
