Our best 2 stock picks
At the recent Future Generation Investment Forum, I nominated two of my best stock ideas. One, a domestic play with EPS growing at 20% over the next three years and the other, an international stock we think is set to double over the next five years.
Our best Aussie idea
There are lots of emerging players disrupting incumbent players but unlike some of the ones we normally look at like cloud computing or autonomous driving, this one’s happening right in our backyard. In fact, Australia is at the forefront of this trend.
The Food and Beverage Industry is undergoing significant structural change. Healthy choices and premiumisation will drive consumer choices in the years ahead. We believe Treasury Wine leads the pack of the Australian plays.
It currently trades at 20 times forward earnings, and it should get roughly 20% EPS growth for the next three years.
Most people in Australia will tell you this stock is too expensive. They might say, “We want to buy Telstra, it’s on 12 times earnings.” We would say, yes, you might be right in the short-term, but in the long-run, if they execute and do double their earnings in the next five years and they held that multiple, then their share price should double.
Our best global pick
The second one is International Flavours and Fragrances (NYSE: IFF). It is the “weapons manufacturer in the war”. Quite simply, it is one of six major ingredient companies globally. We like it for three reasons:
- Ingredients companies sell into the smaller players and they sell into the private label players. Even if you’re a multinational and you are trying to come up with gluten-free Cheerio’s, you need to talk to these guys. So they're a natural beneficiary of fragmentation in the market.
- They have an organic tailwind which has allowed them to grow revenues at 6 to 8%. If you add some margin, you get earnings growth of 15% p.a. We believe a multiple re-rating to 25x should see this stock double over the next five years.
- Lastly, food is premiumising and this is a structural and economically impervious trend that should see this stock well-placed over the next five years.
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Nick is a founding Partner and the Chief Investment Officer of Munro Partners. He is responsible for the investment management of Munro’s key investment funds and the formulation and implementation of the proprietary investment process. Nick has...