Top-quality stocks poised to benefit from long-term global growth
Three fund managers at Alliance Trust tell us what stocks they'd invest in.
Most economists and analysts were wrongfooted by macroeconomic developments in 2023, with many expecting a recession that didn’t materialise. This highlights the difficulty of basing an investment strategy on predictions of top-down factors such as GDP growth, interest rates or foreign exchange rates.
It is far better to focus on analysing the fortunes of individual companies. However volatile the macroeconomic environment, it should pay to look to the long-term fundamental strengths of businesses and build diversification into a portfolio through different ideas that pay off at different times.
Top air travel stock to buy
Andy Headley at Veritas highlights European giant Airbus (Paris: AIR), one of two key manufacturers of airframes, operating in a duopoly with US firm Boeing. Air travel remains robust and continues to grow, with an estimated 80% of the global population yet to set foot on a plane.
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The company’s most important product is its short-haul, single-aisle plane – the A320 – which competes with Boeing’s version, the 737. This new generation of planes is flying off the shelves on account of 20% greater fuel efficiency when compared with older planes, as airlines seek to reduce their carbon emissions.
We believe Airbus’s products are currently superior to Boeing’s. The group’s plan to increase production capacity by 50% should pave the way for strong growth and share-price performance over the medium- to long-term.
Top equipment rental to watch out for
Meanwhile, Jonathan Mills at Metropolis examines Ashtead (LSE: AHT), a large industrial and construction-equipment rental company, operating in the US, Canada and the UK. It buys a wide variety of equipment such as cranes, diggers, floor cleaners and even film-studio equipment, renting it to businesses for industrial and commercial purposes.
For individual firms, rentals usually reduce costs as equipment tends to be fairly specialised and therefore infrequently used, and storage and maintenance is expensive. What’s more, if equipment can be shared and more efficiently used, it’s friendlier for the environment.
An important part of the business model is that Ashtead is able to use its scale to purchase equipment in bulk at attractive prices and, therefore, rent it out on good margins. Ashtead is one of two leading companies within this sector, and with around 13% market share, there is plenty of room for growth.
A revolution in diabetes management
Finally, Sunil Thakor at Sands Capital highlights the medical device company Dexcom (Nasdaq: DXCM). It is a high-quality growth business and a leader in the field of continuous glucose monitoring. Diabetes affects an estimated one in eleven people around the world and is a potentially deadly disease.
Dexcom is one of the leading manufacturers of continuous glucose monitoring (CGM) devices, which are attached to the skin and track glucose to an app on your phone on an ongoing basis. These devices are revolutionising the management of diabetes, leading to fewer complications, greater longevity and a higher quality of life. Within this oligopolistic market, Dexcom offers a particularly strong product and associated software, and distributes them effectively through strong marketing and sales. As a result, Dexcom boasts a steadily growing market share, and we believe the company has strong and improving financials.
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