Each week, a professional investor tells MoneyWeek where he'd put his money now. This week, Phil Cliff, manager of the Focus Fund at Occam Asset Management.
Our investments are picked from the best European (including British) markets offering attractive valuations. We focus on 30 or fewer firms and are constantly meeting top management to gauge up-to-date information on our stocks and test our convictions. This also keeps us posted on the latest industry trends. Corporate-level data suggests to us that the latest shakeout across Europe presents some excellent opportunities for medium-term returns. So, what would we buy? Here are four of our top picks.
In the field of oil majors BG (LSE: BG) has an unparalleled track record of growth, achieved via the drill bit. It is also one of only a few firms exposed to the significant Brazilian offshore oil find. This alone boosts reserves for BG by nine billion to 14 billion barrels of oil equivalent. The continued exploration and development of these and other assets, such as Australian coal seam gas and US shale gas, will allow BG to generate high returns and high growth for the next decade. It's an attractive firm with great access to key resource basins, which also make it a potential acquisition candidate longer term.
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As a European conglomerate, ThyssenKrupp (GY: TKA) is tricky to analyse. Generally investors shun these firms. This presents an opportunity not quite for a ten bagger, but a chance to double or treble an investment. My focus is on the significant management change that has taken place over the last year or so. The incoming CEO has an exceptional track record of restructuring loss-making divisions back to profit, and eliminating problem assets. The company is on track to save e1.5 to e2bn of costs already highlighted to the market, and more savings are likely to follow this year. This will dramatically change the profit potential of the business. The company is currently seeing strong order trends and will be a beneficiary of a weak euro boosting German exports.
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Carillion (LSE: CLLN) has transformed the focus of its business over the past five years towards Private Finance Initiatives (PFI) and outsourcing, and away from low value-added construction. Customers (both private and public sector) can save 20% by outsourcing blue collar activities and also get a better service. The market is focused on the opportunities likely to develop from the change in government. That's really next year's story, so for now the immediate opportunities arise from the private sector which is continuing the long-term trend of outsourcing. In construction the business is gaining traction in the Canadian PFI market, and is well positioned to prosper from the wealthy UAE region, which is embarking on a huge infrastructure investment programme. The stock trades at a derisory 7.5 price/earnings ratio and pays a 5% dividend yield. It should grow profits by double digits in coming years.
Lastly, Dufry (SW: DUFN), a travel retailer specialising in duty-free. It derives 60% of sales from emerging markets, where airline travel is on the up. The company will benefit as local airports seek retailers to maximise profits. We are all familiar with the emerging-markets story. However, you may not know that Dufry generates some 70% of profits from these markets. It is also listed in Switzerland, has high quality management, enjoys sales growth potential of 12% to 14% per year over the medium term and trades on a cash earnings multiple of ten times.
