As we come out of the pandemic, we are identifying numerous structural-growth opportunities in several key areas. This comes as governments deploy sizeable fiscal stimuli to support the economic recovery.
These target global infrastructure programmes, which could create attractive long-term opportunities in sectors such as green infrastructure, robotics and automation, and healthcare infrastructure. Green infrastructure developments focus on renewable energy, electric transportation, energy efficiency and greener buildings.
Robotics and automation trends should accelerate, with companies making their manufacturing capacities and supply chains more resilient. Healthcare infrastructure is likely to be channelled into upgrading physical care facilities and extending digitalisation to improve patient care.
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The latter implies more remote patient monitoring and virtual care. We seek out firms with sustainable franchises, strong pricing power, low risk of disruption, high returns on invested capital (a key gauge of profitability) and strong balance sheets.
The fifth utility
Sweden’s Atlas Copco (Stockholm: ATCOA) is a global leader in vacuum and air-compressor technologies. Its high market share permits the company to maintain a pricing premium. Atlas Copco is very well run and has shown resilience despite being exposed to cyclical end-markets. What’s more, historically it has managed to cover its cost of capital even during severe recessions.
The group sells to a broad range of customers. Air compressors are known as the “fifth utility’” as they are crucial in sectors such as cars, construction and semiconductors. Atlas Copco is well-placed to harness global infrastructure growth through exposure to green-building construction, renewable energy and infrastructure developments for electric transportation, as well as to 5G and healthcare infrastructure.
Another Swedish company we hold is digital industrial-equipment specialist Hexagon (Stockholm: HEXAB). It focuses on enabling firms to augment their robotics and automation throughout their production lines.
This also has the benefit of helping companies reduce their carbon footprints over time. Hexagon is especially exposed to the structural-growth opportunity from the emergence of “digital twin” assets, which are the digital representations of physical objects such as manufacturing sites.
These digital representations are then used to monitor and improve the performance of the equivalent physical asset. We see several markets moving towards the convergence of digital and physical assets, which bodes well for Hexagon’s revenue growth and profitability over the long term.
Software for bespoke healthcare
US-based Veeva Systems (NYSE: VEEV) is at the forefront of bringing tailored software to drug development: it offers cloud-based solutions for the global life-sciences industry. Veeva’s market opportunity is growing thanks to the trend towards more complex and personalised healthcare. Veeva serves a regulated market with products that provide high barriers to entry against potential competitors, thus giving it the ability to sustain a long period of strong growth and profitability.
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