Two professional investors tell MoneyWeek where they'd put their money now.This week:Nigel Kennett and Daniel Monks, managers, CF Canlife UK Equity Fund
Markets have been volatile and falling commodity prices raise worrying questions about the state of global demand and economic growth. Here in the UK, however, the economy remains in a good state of health. GDP growth for the coming year is forecast at 2.3%.
This is supported by a falling unemployment rate that now stands at 5.1%, rising real wages, low levels of inflation and the prospect of interest rates remaining at historic lows. While the strong pound and a weaker global growth outlook has had a negative impact on manufacturing, we continue to see solid levels of growth in several areas of the services sector. We believe the commodities sector remains unattractive, but we see several bright spots in the UK market, particularly among some cyclical companies in the consumer-discretionary sector.
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Our strategy is to find companies that offer genuine structural growth opportunities and are capable of performing well regardless of the market or economic cycle. Many of the best long-term growth prospects are with companies that take advantage of changes in consumer tastes, industry dynamics, or technological developments. The best prospects for growth at the moment are to be found in consumer-focused sectors, given low oil and energy prices, rising wages and low interest rates.
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Whitbread (LSE: WTB) is a solid consumer-focused company and is the UK market leader in its two core businesses, Premier Inn and Costa Coffee. The Costa chain of coffee shops is set to expand, both in the UK and overseas. And Premier Inn has tapped into the popularity of the discount economy that has led to the success of discounters such as Aldi and Lidl.
This has been driven by a seismic shift in consumer behaviour towards saving money in the years following the financial crisis. Premier Inn is a well-recognised brand that is gaining market share and operates in a sector that grows by more than the rate of GDP. Whitbread's valuation is also backed by a vast portfolio of freehold property.
Just Eat (LSE: JE) provides takeaway outlets with access to a larger number of potential customers through an online ordering system.It has the potential to grow whether the economy does or not. In 2011 total sales through mobile devices amounted to less than £5bn. This is projected to reach £17bn in 2017, at which point it will make up about 25% of all purchases made over the internet in the UK. The growth rate is high and Just Eat's market-leading brand gives it scope to raise its margins and profitability considerably.
Finally, we like Ashtead (LSE: AHT), the plant hire company. It has a strong presence in the American heavy equipment market. Historically, US construction firms tended to own their own equipment, rather than hire it, whereas in the UK and Europe it has been the other way around. However, since the financial crisis, American firms have started to hire too.
When the financial crisis hit in 2008, Ashtead had little debt and was able to buy newer machines when its rivals were unable to do so. This strategy has helped it grow and as a result it is the number three player in the American market, with a 6%-7% market share. Its share price has risen substantially over the years and the industry is highly cyclical, but the company has solid fundamentals that should stand it in good stead for some time to come.
