Holly Black: Welcome to Morningstar's 3 Stock Picks. I'm Holly Black. With me is Ben Preston. He is Manager of the Orbis Global Equity Fund. Hello.
Ben Preston: Hello.
Black: So, you're going to talk us through three stocks in the portfolio that you're feeling very positive on. Where would you like to start?
Preston: Well, I'd like to start by summarising that I've picked three stocks to choose to reflect what we do as managers, which is to look for companies trading below their true value. Whether they're growth stocks, value stocks, stable stocks, whatever, we can buy opportunities from across the board. And so, the three shares that I've chosen today – BMW Vestas Wind Systems and Anthem Healthcare are a good reflection of the range of opportunities that we found.
Black: Okay. Well, let's start with Vestas. Why do you like that one?
Preston: Vestas is the world's largest manufacturer of wind turbines, with about a 20% to 25% global market share. So, wind turbines have historically been – the criticism has been, well, they're just – they don't work, they're not economically viable, or they can't provide decent baseload of power. Those things are no longer true. The cost of producing electricity from wind is now more competitive than conventional fuels, and we know that with climate change being such an issue that we have to deal with, there's going to be more and more investment into the renewable energy. We've seen the EU take a leadership on that. We've seen Joe Biden now make campaign promises to invest in it as well.
So, Vestas Wind Systems is a company which is doing very well in terms of its current profits. We also think it's got a very bright future as well. And one doesn't have to pay very much to invest in it compared to some of the old fossil fuel giants which still have much larger market caps, which probably isn't the way that things will turn out in the future.
Black: So, is it another concern with renewables that to get profits from them? They are quite reliant on subsidies.
Preston: They used to be very reliant on subsidies, they're no longer. And that can be seen because when projects come on stream now, they're typically auctioned by governments and the winner of the auction is the one that offers to produce electricity at the lowest price, and those have been won for a few years now often by renewable companies without subsidies.
Black: Okay. Onto stock number two. Why do we like BMW?
Preston: Car manufacturers have been under a cloud of uncertainty for a while now and then Covid came along and made the whole thing 20 times worse. So, shares in car companies sold off very hard, particularly in the first quarter of this year. And that's given us the opportunity to buy shares in BMW at what is – even after some recovery at a 30% discount to their accounting value. That's if the accountants add up all the assets, subtract the liabilities, you can take a 30% discount to that, and that's the price you pay today. That's great value for a company which is actually on the right side of trends. It's got a good electrification strategy. It's got a good premium strategy. It's doing well in China. So, it's a bargain at the current price in our view. There's always risks. There's always things that can go wrong. But it seems like the odds are on our side.
Black: Oky-doke and onto our final stock.
Preston: It's in some ways the most complicated one, Anthem. It's a health managed care company in the US It connects people that need healthcare, insured people, even people on Medicare, Medicaid with the providers of healthcare services. And so, it fulfills a very important function. If you don't use one of these managed care organizations, your healthcare is going to be more expensive. If you're a doctor, then you have to plug into one of these networks, because otherwise you're not going to get any patients. And so, it occupies a very valuable spot. And there's only a handful of companies that do it. They've grown their earnings much faster than the average company over the last 10, 20 years, and yet again, there's a real cloud of uncertainty and that comes from political events.
With the presidential election looming, the concern is that a Democratic sweep would put in such significant reforms at the healthcare system that they would crush the profits of companies like this. Those fears have been around before. They've always felt to come true. They won't come true again, because actually, if you ask the man on the streets in the U.S., they're typically quite happy with their current healthcare arrangements. So, Joe Biden is not a reformist candidate. He has made it quite clear that he's going to be moderate with his views, and yet one can buy shares in Anthem at about 11, 12 times next year's earnings. They should be on a sort of equal multiple with the S&P 500. And so, again, it strikes us as a bargain.
Black: Ben, thank you so much for your time. For Morningstar, I'm Holly Black.
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