5 global stock picks you need to know about for 2017
Pieter Fourie, head of global equities at Sanlam Private Wealth UK, looks at a five global stocks he expects will offer the best value to investors in 2017.
Fourie said that his selection of five top picks for 2017 includes two consumer staples businesses, an asset management business, a media company and a software company.
“All these businesses are well positioned for growth and trade on a combined free cash flow yield of 6.2% and return on invested capital of 39.7% based on consensus forecasts,” he said.
Here are the analyst’s five picks for 2017:
Pernod Ricard
The world’s second-largest wine and spirits company has a strong portfolio of brands across the different key spirits categories. Fourie pointed out that it’s the market leader in the Asian premium spirits segment, with a strong footprint in China and India. India remains a growth driver for the group, while China has slowed down since 2012 due to the anti-extravagance campaign.
“Pernod’s share price has underperformed for a few years and appears attractive to us at 16 times earnings for next year. The company remains geared towards a wider recovery in liquor sales in Asia after a very subdued period over the past three years,” he said.
Nestlé
The company’s global reach and consistent organic growth is in many ways unrivalled, opined Fourie. “It has grown dividends per share by 8% compound over 25 years, and I feel it’s well positioned against competition. The company has struggled to perform over the past few years but I expect announced savings of at least 150 basis points in operating margin over the 2017–20 period, which will allow the company to compound cash operating earnings at a high single digit,” he said.
“We model long-term growth in cash flow earnings of 5% per annum going forward, which should yield decent total returns after the most recent pull-back in the shares provides a more attractive entry point,” the analyst said.
Aberdeen Asset Management
“I still believe in Aberdeen’s robust investment process, and its longer term performance is testament to this. Even though the external environment is tough for the company today, it remains geared towards a general recovery in equity markets and emerging markets in particular,” Fourie said.
He noted that the stock is trading on 12 times earnings for next year and yields 5% at current levels. If equity markets continue to grind higher, Aberdeen should benefit from this by virtue of its positive operational gearing to higher equity markets.
Alphabet (Google)
Fourie said that he continues to recommend Google as a long-term core holding as it remains the dominant global search engine with more than 65% of search budgets in the US alone.
The sub-industry is growing by more than 14% year on year for the foreseeable future and Google, as the undisputed leader in this segment, is well positioned to capture a disproportionate share of this growth – fuelled by mobile – at a time when competitors are languishing.
“The company is trading on a free cash flow yield of 5% while the operating free cash flow will continue to grow at least 12% per annum for the next three years. The company also boasts net cash of US$80 billion by year end,” Fourie said.
Oracle
The company’s free cash flow yield of 7.5% remains attractive versus its peer group, Fourie said. The investment community continues to question Oracle’s ability to successfully negotiate the strategic move away from on-premises software solutions towards a subscription-based cloud software solution for its customers.
“I believe shares should react favourably as cloud numbers continue to be better than expected and as the legacy business performs in line with broader market expectations.
“Oracle’s management remains confident that software as a service can continue to grow comfortably at a rate above 50% for the foreseeable future to compensate for the loss of revenue on its legacy business as the company continues to integrate acquisitions completed over the past few years,” the analyst said.
Read: The best and worst performing companies on the JSE in 2016
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