Holly Black: Welcome to Morningstar's 3 Stock Picks. I'm Holly Black. With me is Laure Négiar. She is Manager of the Comgest Growth World Fund. Hello.
Laure Négiar: Hello, Holly.
Black: So, three stocks for us today. Where should we start?
Négiar: Let's start in the US with a pharma stock. Sometimes people think that pharma isn't so great for growth managers because there are fears of pricing pressure in that sector. But the stock I'm going to focus on is Eli Lilly (LLY), one of the two innovative leaders in the diabetes space, treatment of diabetes. They are one of two leaders for every innovative product that comes out of that space. Unfortunately, the global diabetic population is growing at a 5% to 6% pace every year, and there's actually strong pricing power for the companies able to come up with good outcomes for patients. Lily has been in our fund since 2017. And the earnings compound annual growth rate has been above 15% at the bottom line, so really negating this idea that you can't find sustainable double-digit growth in the pharma sector.
Black: Okay. What's stock number two?
Négiar: Stock number two is Hoya (7741) of Japan. They are the leader in the treatment of glass and that takes them to a variety of end applications. On the technology side, they would include hard disk drive glass substrates and also mask blanks for the semiconductor industry, but also, much more simply, eyeglass lenses and contact lenses. This is a company that we've been invested in again since 2019. And they are back to a level of earnings that is 32% higher than two years ago despite the pandemic that really hit their healthcare business. So, very resilient, well into the double-digits earnings profile, as you know that's what we look for at Comgest, with very strong growth on the tech side and an upcoming recovery expected on the healthcare side.
Black: Okay. And what is our final stock?
Négiar: Final stock is one investors have probably heard about quite a bit these last few months, Taiwan Semiconductor (2330). We've been invested in this stock since 2008. Foundry, which is what they do. They are the leader in foundry, in the foundry business. That whole story of foundry taking share from semiconductor manufacturers has unfolded very much over the last several years and accelerated with COVID such that they are growing well into the double-digits. Demand for high-performance computing has been accelerated during COVID. Even pre-COVID, this was a nice double-digit grower. We would note that during this whole time of very strong demand for Taiwan Semiconductor's products at no point did they go ahead and try to profit excessively from the situation. They haven't raised prices. Their aim is to keep the trust of clients for the long term and to keep the ecosystem working well. And as long-term investors we're really happy to see their position. They have invested meaningfully this year in CapEx to the tune of 30 billion. It used to be a low-single-digit billion dollar number several years ago. So, the stakes to enter the game have risen. The moat has widened in our view, and the path for continued double digit growth looks strong to us.
Black: And even though you are not a sustainable fund, with some of these stocks, you really rate the ESG credentials, don't you?
Négiar: Yes. Yes, we do. Hoya is one where we think they have done a lot of improving. The treatment of glass does have an environmental impact. Hoya has not only disclosed a lot more but put a lot of environmental measures in place to mitigate the impact. TSMC also does a lot on water treatment in resource-scarce Taiwan. So, yes, we do have an internal system for ESG rating, and these companies score well.
Black: Laura, thank you so much for your time. For Morningstar, I'm Holly Black.
