The US companies Australians should be holding in their portfolios

Chances are you already hold the Magnificent Seven in your portfolio. It’s a brave investor in this world that doesn’t. Fear not, this is not a story to condemn these stocks, but rather a reminder of the depths of the US market and other options for great stable quality compounders that deserve consideration for your portfolio.

The land of the brave and home of the free is responsible for 62 of the world’s largest companies by market capitalisation, representing US$38.76tr. That is just a drop in the ocean compared to the true volume of the US market at just under US$70 tr.

The sheer size of the US market means that Australians could add exposures to industries that are lacking in Australia – and to companies that offer stability and high quality to complement their broader portfolio.

I spoke to Stephen Arnold, Co-founder, Managing Director and CIO for Aoris Investment Management and Arms Rosenberg, Co-founder and Portfolio Manager for Minotaur Capital for the US companies they think merit a position in your portfolio, either as a quality staple or a growth prospect.

As Rosenberg puts it, “the real opportunity for active investors is finding exceptional businesses beyond the index headlines.” 

Here are a few of those opportunities.

Why look outside the Magnificent Seven?

One of the most critical rules of investing is careful diversification.

For those who have focused their international exposure on the Magnificent Seven, Rosenberg is quick to remind investors that this has its own risks, highlighting that Australian investors already have a concentration risk domestically to banks, resources and the Australian economy.

“Simply adding the Mag 7 can create a second concentration: seven mega-cap stocks, owned by almost everyone, exposed to overlapping themes such as AI infrastructure, cloud, digital advertising and platform monetisation, and already priced with very high expectations,” she says.

Rosenberg encourages investors to think about exposures they can’t readily access domestically – “global software platforms, healthcare innovation, defence and public-safety technology, energy infrastructure payments, industrial automation and other world-class compounders.”

What does it mean to invest in a quality staple?

There are a range of ways to think about a quality portfolio staple in your portfolio – ideally, it’s a business that will consistently grow over time and have solid fundamentals. Some might consider these a “sleep-at-night” stock – though many fund managers are wary of this, recommending investors never become complacent about what they are investing in.

Aoris are highly selective in their approach to quality, with only 15 global stocks in their portfolio.

“We look for established businesses with a long history of successful profitable growth that serve many customers across regions. 

These businesses consistently grow faster than their peers because they provide their customers with great value. 

They have strong balance sheets to withstand periods of economic stress and to take advantage of opportunities – be it bolt-on acquisitions or repurchasing their own shares,” Arnold says.

Rosenberg takes a similar view, looking for “durable competitive advantages, strong leadership and clear paths to value creation” as part of her fundamental analysis in the search for undervalued quality stocks.

The US stocks the experts like

Stephen Arnold, Aoris Investment Management

1. Cintas Corp (NYSE: CTAS) 

The core of its business is uniform rental: Cintas measures, brands, launders, maintains and replaces uniforms for employees on behalf of its customers. The service typically costs only a few dollars per employee per day, yet solves a recurring operational need for businesses in sectors such as hospitality, manufacturing, construction, healthcare, aged care and government services. This is a vast opportunity set if you consider industries where uniforms are required, such as hospitality, manufacturing, construction, healthcare, aged care and government services.

Cintas keep their customers on average for more than 25 years.

It has been able to grow at around 7% per annum – twice the rate of nominal GDP – for the last couple of decades. 

We believe this rate of growth is sustainable, through a combination of winning first-time outsourcing clients, and selling more services to existing customers.

2. WW Grainger Inc. (NASDAQ: GWW) 

Grainger operates in a fragmented and competitive market. What is does sounds simple but it consistently gained market share by doing the basics well, managing complex supply chains, and being a supplier its customers can rely on. Consider a large warehouse which may have a dozen doors to receive deliveries and dispatch goods. Grainger needs to ensure that the right supplies go to the right door at the right time, and they arrive together and not in separate boxes over different days. Grainger’s speciality is mid and large customers operating across multiple states and with complex needs.

3. Visa (NASDAQ: V)

If you consider your day-to-day activities, you may have tapped a Visa card this morning to get on public transport or buy your morning coffee. If you’ve travelled to the World Cup (which Visa is a major sponsor of), you may have done the same without needing to consider the transfer of foreign currency or put in four-digit pin numbers. When you buy something online, perhaps at Amazon, you don’t need to stop and think whether the vendor is offshore the hassle of international bank transactions.

Visa has been benefiting from the ongoing transition from cash and cheque to electronic payments, the transition in European markets away from domestic card networks and, via its fraud reduction and security features and scale, is increasing the revenue it receives per transaction.

Stable coins were seen as a potential threat to the business, however Visa has simply incorporated this as another currency to settle in their payments and become part of the stable coin ecosystem instead of being displaced by it.

From a growth perspective, Visa had a particularly strong March quarter this year where the underlying revenue growth was 17%. 

Visa is the most trusted financial services brand, which is an enormous competitive advantage when thinking about rising risk of fraud. We see a very attractive decade ahead for Visa.

Armina Rosenberg, Minotaur Capital

1. Axon Enterprise (NASDAQ: AXON)

Axon is a rare company that can be both a portfolio staple and a growth story. It began as a hardware company selling TASERs and body cameras, but the real value today is the software ecosystem around those devices: digital evidence management, records, real-time operations, productivity tools and now AI-enabled workflows for public safety.

That creates a very powerful moat. Once a police department or public-safety agency has embedded Axon across its cameras, evidence, reporting and operating systems, switching becomes highly disruptive. 

The result is a business with high recurring revenue, strong retention, meaningful pricing power and a long runway as it expands from police into federal, corrections, enterprise security and international markets. 

In the March quarter, Axon delivered its ninth consecutive quarter of 30%+ revenue growth with annual recurring revenue growing 35% to ~US$1.5B and net revenue retention of 125%.

What makes Axon especially attractive is that the digitisation of public safety is still early. This is not just a hardware company selling devices; it is becoming the operating system for law enforcement and public safety.

2. NextEra Energy (NYSE: NEE)

NextEra is a utility with a growth engine attached. Florida Power & Light provides regulated, relatively predictable cash flows and a large, growing customer base. NextEra Energy Resources gives the company exposure to the structural growth in renewables, storage, transmission, gas and broader power infrastructure.

The US is suddenly discovering that AI data centres, reshoring and electrification all require a much larger and more reliable grid. Power is becoming a bottleneck, and NextEra has the scale, development capability and access to capital to help solve that problem. 

NextEra has a backlog of 33GW and through to 2032 the company is targeting ~80-100 GW of development across wind, solar, battery storage, gas generation and nuclear. 

 The proposed Dominion merger, if completed, would further strengthen its position by adding exposure to Virginia and the data-centre corridor.

So, NextEra has the characteristics of a portfolio staple — regulated utility cash flows, scale and dividend growth — but with more structural growth than a conventional utility.

3. Eli Lilly (NASDAQ: LLY) 

Eli Lilly is no longer just a pharmaceutical company with a successful drug. It owns one of the most important therapeutic platforms in a generation.

Tirzepatide has already transformed the obesity and diabetes markets, and the broader GLP-1/incretin category is expanding into cardiovascular, metabolic and other obesity-related conditions. The approval of an oral GLP-1 also matters because it removes some of the friction associated with injectables and gives Lilly another route to mass-market adoption. Globally there are almost 900m adults living with obesity and 2.5 billion adults classified as overweight. This is a market measured in hundreds of millions of potential patients and we are still early in adoption.

There will be debates around pricing, access and competition, but the addressable market is enormous and still under-penetrated. 

Lilly has the rare combination of near-term revenue momentum, manufacturing scale and pipeline optionality. In our view, this remains early in the lifecycle of a generational pharmaceutical platform.

BONUS CONTRARIAN PICK: Dollar Tree (NASDAQ: DLTR)

Dollar Tree is more contrarian, but that is precisely why it is interesting. It sits at the intersection of two forces: a structurally stretched consumer and a company-specific turnaround.

The sale of Family Dollar removed a major drag on returns and allows management to focus on the core Dollar Tree brand. At the same time, the shift to a multi-price format gives the business more flexibility on assortment, mix and margins than the old single-price model. The early evidence is encouraging with same-store-sales in the most recent quarter growing 3.5% and gross margins expanding 120bps leading to adjusted EPS increasing 38%. The company also converted or added around 630 stores to its multi-price format in the quarter, ending with ~5,900 multi-price stores.

This is not a glamour stock, but it can be a defensive earnings recovery story. 

Trade-down demand supports the top line, while operational self-help, margin improvement and buybacks can drive earnings growth if execution continues.

A final word?

The size and scale of some of the biggest US companies mean investors looking for portfolio staples shouldn’t ignore US companies as part of their approach – the same way they might otherwise consider options like Woolworths or Transurban.

It’s also worth remembering that newer and exciting tech names are not the only opportunities on offer and true diversification means ensuring you look beyond one sector and incorporate exposures that are not always readily available in Australia.