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.
![American Express stand](https://cdn.mos.cms.futurecdn.net/GhqvkHr6nByc73sQwNSaRL-415-80.jpg)
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
![https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg](https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748-320-80.jpg)
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.
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
James Dowey co-manages the Liontrust Global Dividend and Liontrust Global Innovation funds
-
Regulator moves to protect access to cash amid branch closures and disappearing ATMs
News The Financial Conduct Authority has told banks to start assessing if local communities have adequate cash access from mid-September
By Marc Shoffman Published
-
VAT hike on private school fees could come earlier than previously expected
The government could start charging VAT on private school fees as soon as January 2025, according to the latest reports. What does it mean for parents?
By Katie Williams Published
-
UK mid-caps: an improving outlook
UK mid-caps have perked up and the rally may run further, but long-term investors should remain selective
By Cris Sholto Heaton Published
-
The tobacco industry is going smoke-free - how to profit from it
Tobacco companies have realised their traditional products are on the wane. But new opportunities have opened up – and should prove lucrative
By Rupert Hargreaves Published
-
Is it time to invest in creative industries?
Any industrial strategy should not overlook the creative industries, one of our top national assets
By David C. Stevenson Published
-
Is Mercia Asset Management set for success?
Mercia Asset Management helps the government fund smaller companies in Britain’s regions. Should you invest?
By Rupert Hargreaves Published
-
British stocks set for a boost
British stocks are due for a bounce as the UK looks more stable compared to many economies
By Alex Rankine Published
-
Ocado shares jump by a fifth
Ocado takes a turn for the better after attractive profit forecasts were announced
By Dr Matthew Partridge Published
-
The AI boom is on borrowed time
The hype around the AI boom could be on its way out – but why?
By Alex Rankine Published
-
Diploma: a blue-chip set for strong growth
Diploma, whose niche products include seals and fasteners, serves an array of growth markets. Should you invest?
By Dr Mike Tubbs Published