Three stocks creating value via innovation
Professional investors James Dowey and Storm Uru of the Liontrust Global Innovation and Global Dividend funds, tell us what they’d buy now.
Innovation is not necessarily dependent on the latest tech. Rather, an innovative business is one that creates genuine value for customers by delivering a product at a lower price or a higher quality-to-price ratio than what was available before. In terms of lower price, think of Costco, which beats Walmart and even the mighty Amazon by welcoming its members directly into its warehouse premises. In terms of quality-to-price think of the ever-growing value proposition of the Apple iPhone, now a 15-year-old invention.
But not every great innovation is a good investment. A successful innovative business must capture an adequate share of the value it creates. If an innovative product is easy to replicate, then everybody does it and nobody makes any money. Think of Peloton and its copycats. As such, we only invest in innovative businesses that possess or are in the process of building lasting barriers to competition to protect their profits, and whose market valuations present significant long-term upside to shareholders.
Planet Fitness: gyms for less
Planet Fitness (NYSE: PLNT) is a franchiser and operator of over 2,000 gyms in the US. Its no-frills gym and low-priced offering are disrupting the market and bigger competitors. The average gym membership fee in the US is $50 per month and Planet Fitness’ basic membership comes in at $10. Incumbent gyms are committed to their plush facilities and associated high costs, and are simply unwilling and unable to cannibalise their higher membership fees. This gives Planet Fitness its runway to grow. The company has weathered the pandemic well in a badly affected industry, and is well positioned to capitalise on the recovery.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Otis: on the way to the top
Otis (NYSE: OTIS), the lift maker, has recently spun out of its parent United Technologies. We love when excellent businesses spin out of poor performing conglomerates. With a portfolio of approximately 2.1 million elevator units, Otis is around 40%-50% bigger than the other three global original equipment manufacturers in elevator maintenance, which gives it opportunities to drive incremental scale advantages.
The elevator maintenance industry has retention rates of 95%, strong pricing power and the ability to add additional customer value through innovations. This means strong cash generation, which management, relishing the opportunity as a standalone company, is busy reinvesting in growth while returning the rest to shareholders via dividends and share buybacks. Meanwhile, the stock trades at a 40% discount to lower-quality peers Kone and Schindler, and we believe it is at a significant discount to intrinsic value.
American Express: handsome rewards are paying off
American Express (NYSE: AXP) is gaining market share against the big two card networks, Visa and Mastercard, as card transactions become electronic. Digital wallets and online checkouts create a more level playing field than leather wallets. The burgeoning ranks of Amex members are increasingly focused on rewards, where the company beats the big two hands down.
As commerce shifts online, merchants are pressured to reduce payments frictions, so accepting Amex is essential. The firm is thriving even though travel remains subdued. Revenues and profitability are above pre-pandemic levels. As travel recovers it will enjoy excellent operating leverage.
James Dowey co-manages the Liontrust Global Dividend and Liontrust Global Innovation funds
-
Zoopla: housing market recovery continuing amid brighter 2024 outlook
The Zoopla House Price Index has found sellers are still accepting five-figure discounts on their properties. But house price inflation is improving.
By Henry Sandercock Published
-
Revealed: the best funds to buy before the end of the tax year
Looking to add more investments to your portfolio but not sure where to start? We reveal the best funds to buy now as the end of the tax year edges closer.
By Katie Williams Published
-
What to consider before investing in small-cap indexes
Small-cap index trackers show why your choice of benchmark can make a large difference to long-term returns
By Cris Sholto Heaton Published
-
Why space investments are the way to go for investors
Space investments will change our world beyond recognition, UK investors should take note
By Merryn Somerset Webb Published
-
Time to tap into Africa’s mobile money boom
Favourable demographics have put Africa on the path to growth when it comes to mobile money and digital banking
By Rupert Hargreaves Published
-
M&S is back in fashion: but how long can this success last?
M&S has exceeded expectations in the past few years, but can it keep up the momentum?
By Rupert Hargreaves Published
-
The end of China’s boom
Like the US, China too got fat on fake money. Now, China's doom is not far away.
By Bill Bonner Published
-
Magic mushrooms — an investment boom or doom?
Investing in these promising medical developments might see you embark on the trip of a lifetime.
By Bruce Packard Published
-
What pension providers don't tell you about your retirement money
Check the small print from your pension provider or risk losing thousands.
By Merryn Somerset Webb Published
-
Should you invest in sector funds?
Sector funds can be a useful way to fine-tune a portfolio or track a theme, but check what the index holds.
By Cris Sholto Heaton Published