Holly Black: Welcome to Morningstar's "3 Stock Picks." I'm Holly Black. With me is Rachel Winter. She is Investment Director at Killik & Co.
Hello.
Rachel Winter: Hi, Holly.
Black: So, Rachel, we're talking ESG-friendly stocks this week. Where should we start?
Winter: Let's start with Antofagasta, which is a mining company. So, it might not typically be associated with being an ESG stock. But the reason we like this one is that 83% of the company's revenues come from mining copper. And that's really important material in the development of electric vehicles and also, just the ongoing electrification of the world as we try and become more carbon neutral. So, to give you an example, a normal vehicle requires about 25 kilograms of copper, whereas an electric vehicle needs about 75 kilograms. And that doesn't even consider all the additional charging network that would be required. So, we think as we move towards a time where we're all driving electric vehicles, we think the demand for copper will rise. And that should be good for the copper price.
Black: I think this is a really interesting indication of how this space has changed as well. Because historically, if we think about ethical funds, for example, they would just rule out Antofagasta based on the sector it trades in, and this just shows you how that mindset is changing.
Winter: It does. And I think you really have to look at the bigger picture, particularly now that governments all around the world are signing off these big stimulus packages to help the economy because of the coronavirus, and a lot of that money is expected to go towards infrastructure, particularly green infrastructure. And that's got to include more electrification and therefore copper wiring.
Black: Okay. Stock number two?
Winter: Stock number two is Volkswagen, which is possibly another controversial one. And I think often when people think about ESG stocks, they think about companies that are ethical or green right now. But I think it's also important to consider companies that are moving in the right direction. And I know that Volkswagen is still very heavily associated with the dieselgate scandal, but the company is investing very heavily in the development of electric vehicles. And to give you an example, between now and 2029, the company wants to invest €33 billion in the development of electric vehicles, and it hopes to design 75 different models of car. So, that's a huge amount of investment going into this one space. So, we would consider Volkswagen to be a future leader in electric vehicles.
Black: So, how often would you review a company's ESG credentials? Because yeah, I think a lot of people would still think emission scandal for this firm.
Winter: They would, but you've got to look forward rather than looking back. So, we have considered that scandal; we have looked at the changes the company has made. And we really do think that scandal was a big wake up call for the company. They have made a lot of changes to their senior management since, and now they're moving in a very different direction.
Black: Okay. What's our final stock?
Winter: The final one is a Japanese company called Nidec. And it's actually one of the biggest motor manufacturers in the world. About half of the world's electricity is actually used up by motors, be they in consumer electronics, cars, factories. So, by having more efficient motors, we can actually really bring down the carbon emissions across the whole world. And Nidec is a very efficient manufacturer of motors. And they're starting to move very heavily into the electric vehicle space, and they hope to be a market leader. So, as electric vehicles become more popular, we would expect Nidec to do even better than it is at the moment.
Black: And it's quite interesting play because when people think of EVs, they're probably thinking Tesla. So, to find a lesser known name, perhaps better investment opportunity?
Winter: Exactly. And Tesla has done incredibly well, but their shares are considered to be quite expensive. So, it's helpful to look at other ways that we can play that theme.
Black: Rachel, thank you so much for your time. For Morningstar, I'm Holly Black.
