Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Rachel Winter. She is Investment Director at Killik & Co. Hello.
Rachel Winter: Hi, Holly.
Black: So, you're back once again with three stock picks for us. Where shall we start today?
Winter: The first one is Costco, which is an American company, and it's the world's largest operator of membership warehouses. So, that means that customers will pay an annual membership fee, and for that they get to go to Costco and access goods at cheaper prices. And this is actually a retail model that's done really well in lockdown, and it's one that's done really well in store as opposed to online. And it seems to be that people are very happy to go to a store if it means that they're getting good prices and they're buying in bulk. And actually, we think this idea of bulk shopping will continue to do well after lockdown, because more people are moving out of cities to the countryside, and therefore they'll probably do more big weekly shops rather than these more frequent convenient shops.
Black: And this is one of the stores we saw people queuing miles round car parks for in the very first lockdown. Do you think this could change us all in our shopping habits that we do become bulk buyers?
Winter: I think for a lot of people it will. For me, personally, when I was living in London, I was doing much more frequent convenient shopping, but now living out of London I have realized that doing a less frequent bulk shop is much more cost effective. And I think lots of people will have been introduced to that during lockdown, and I think a lot of people will stick with that when lockdown ends.
Black: Okay. What's stock number two?
Winter: Second one is another American business. It's called Linde, and it's a leader in industrial gases, and we like this one for its hydrogen exposure. At the moment, a big proportion of carbon emissions come from transport. And while batteries might be a good alternative for smaller vehicles like cars, they're not so viable for bigger motor transport like trucks. And this is where we think hydrogen might be a good alternative. And so, at the moment, Linde is a leader in hydrogen, both in terms of producing it and also transporting it. And at the moment, a lot of the hydrogen used is what's called grey hydrogen, and that means that it comes from natural gas. So, at the moment, it's not actually that environmentally friendly, but what we're moving towards is something called green hydrogen, and that is where water is split into hydrogen and water, and you can use that hydrogen, and it's a very, very green source of fuel.
Black: And the companies like this have a tailwind from regulation, because obviously governments around the world are trying to reduce emissions.
Winter: They do. So, there's a huge amount of pressure at the moment from governments worldwide for all countries to move towards net zero emissions targets, and I think hydrogen will definitely be a factor in that future.
Black: Okay. What's our final stock?
Winter: The final one is a Chinese insurance company called Ping An. China has recovered very well from the pandemic as we saw from the last set of GDP numbers. But at the moment, China's GDP per person is about $10,000, and that tends to be around the level at which people start to look at financial products like insurance. And you tend to find that once a country gets to $10,000 per person, the GDP tends to accelerate quite quickly from there. So, we do expect an increasing demand for insurance from China. And we do also think that the pandemic will have increased the focus on things like life insurance. So, we think there are lots of reasons why Ping An could be set for a good opportunity over the next few years.
Black: And I suppose in a country like China for Ping An, the population is so big and growing that the opportunity set there is almost endless.
Winter: It is. It's absolutely huge. There's a huge under-penetration of insurance in China at the moment. And if we are set to see an accelerating level of GDP per person, then I think the short-term opportunity for Ping An is absolutely massive.
Black: Rachel, thank you so much for your time. For Morningstar, I'm Holly Black.
