Uncommon Sense Investor visitors continue to discover this article from deep in our archive. So, like a vintage song, we’re reposting it to our front page:
Unless you’re a trader, the advice to investors from portfolio managers worth their salt is to own well-managed, dependable, market-leading companies that people touch every day, and to own them for the long haul.
So what do you want to own from now until at least 2025?
We ask because RBC Capital Markets Global Equity Research team has put together an exhaustive, nearly 200 page report entitled Imagine 2025: Themes, Opportunities and the “Law of Accelerating Returns”.
The report is broken down into six themes including, “The Calibrated and Augmented Self”, and “The Agility Imperative”. It’s heavy stuff.
Luckily for you and to save you time, we’ve plucked some key commentary, a list of 70 stocks, nine of them Canadian, from seven sectors, and a few interesting charts.
Here are some select excerpts from RBC’s report:
Our research report was an unprecedented collaboration across the RBC Capital Markets Global Research department to identify the themes and opportunities across sectors we believe will become the norm by 2025.
“The only thing that is constant is change” – Heraclitus
While the above quote from the famous Greek philosopher Heraclitus may be true in the proverbial sense, it is not a fair representation of the state of play today.
Change is not constant; it is accelerating at a dramatic pace. We believe this accelerating pace of change have been driven partly by faster rates of adoption around new technologies.
It took about 46 years before electricity received mass adoption. However, the time for mass adoption of the telephone and radio was only 35 years and 31 years, respectively; the personal computer took about 16 years, and the iPhone took less than three years.
The Accelerating Pace of Change:
- Global Industrials: Albemarle, Aptiv, Canadian National Railway, Cargojet, Deere, First Quantum Minerals, General Motors, Hexagon AB, Magna, Northrop Grumman, Nutrien Ltd, Raytheon, Roper Technologies, Ryanair Holdings, SNC-Lavalin Group, Tesla, WSP Global and Xylem.
- Global Technology: Alphabet, Amazon.com, Apple, Facebook, Mastercard, Micron Technology, Microsoft, Netflix, Nextdc Limited, NVIDIA, PayPal, salesforce.com, ServiceNow, Splunk, Synopsys and Visa.
- Global Financials: Americold Realty Trust, Beazley, Brookfield Asset Management, Chubb Limited, ING Groep NV, JPMorgan Chase & Co, Prologis, SVB Financial Group and Toronto-Dominion Bank.
- Global Healthcare: Celgene, CVS Health, Gilead Sciences, Intuitive Surgical, iRhythm Technologies, SAGE Therapeutics and UnitedHealth Group.
- Global Telecom and Media: American Tower, Cellnex Telecom, Digital Realty Trust, GDS Holdings, TELUS, Vodafone Group and Walt Disney.
- Global Consumer: adidas AG, Estee Lauder, Kroger, Loblaw, LVMH, McDonald’s, Walmart and Yum! Brands.
- Global Energy: Brookfield Renewable Energy Partners, Halliburton, NextEra Energy, Orsted and Schlumberger.
Equity valuations are based on the present value of future cash flows. Most analysis is focused on the next quarter or one-to-two years, but rarely is time and effort taken to think about the next seven years when assessing the valuation of a company.
We hope our Imagine 2025 report, including the global list of forward-thinking companies highlighted in our Imagine 2025 Portfolio will challenge executives and asset managers to think expansively and creatively as they invest with an eye towards the next decade.
Our portfolio of 70 names is weighted 26% Industrials, 23% Technology, 13% Financials, 11% Consumer, 10% Healthcare, 10% Media and Telecom, and 7% Energy.
We acknowledge given the more cyclical nature of our portfolio, in the event of a recession investor sentiment would shift away from our more cyclical and innovative group to a less innovative and more defensive positioning.
We also point out our portfolio is heavily weighted towards the USA, comprised of 69% USA domiciled and listed companies, 17% Canada and 14% UK, Europe and Australia.
(Editor’s note: Here’s a list of stocks selected for some intriguing commentary and/or they’re owned by many clients of Davis Rea Investment Counsel, the sponsor of Uncommon Sense Investor.)
AMZN, along with GOOGL, have invested the most in artificial intelligence (AI) competencies and have the Big Data access and Compute Power infrastructure to benefit the most from AI and machine learning (ML) deployments.
AMZN also faces the most large total addressable markets (TAMs) among the Internet companies — Retail, Cloud, Advertising, Shipping & Logistics, Business Supplies, etc.
We view NFLX to be on par with most major Internet companies, in terms of its AI/ML development. Given its 120 million subscriber base, NFLX has the data and resources to leverage AI technology.
Today NFLX uses AI technology for content promotion and targeting, content price optimization, programmatic marketing, and improving streaming quality, to name a few. One of the company’s experiments include creating software-edited trailers that are personalized for each subscriber, increasing the likelihood of those viewers to watch the movie.
Identified and is at the center of new payment flows that represent more than $200 trillion in volume, which is 4x the current addressable market.
As new markets and technologies such as business-to-business (B2B), internet of things (IoT), and Push Payments proliferate, all driven by many ofthe “change forces” facing society and technology, we believe V stand as beacons of “Trust” around the world, which will enablethem to capture a disproportionate amount of share in these new payment flows.
Northrop Grumman (NYSE:NOC)
Northrop Grumman is a leader in the critical defense niches that should become increasingly important in a world focused on Great Power competition as the US seeks to reassert its technological dominance in defense marketsafter significant advances from near peer adversaries, particularly China.
Northrop’s capabilities in stealthbombers, intercontinental ballistic missiles, satellites, cyber, and autonomous systems will be of increasing importance in this environment, and it has a sector-best management team to lead it through this period of uncertainty.
Three facets of GILD’s pipeline lead us to view them as a leader among biotech companies through 2025:
- GILD’s HIV drugs should continue to address a high unmet need, especially considering their therapies provide safe and effective long- term disease control;
- The company is a pioneer in up-and-coming cell therapy innovation, which should lead to long-term pipeline diversification; and
- The company’s increasing focus on AI partnerships with technology companies should enable margin expansion, increased research and development productivity, and differentiation in an increasingly competitive drug development space.
McDonald’s is undergoing far-reaching steps to position itself for a new generation of shopping patterns andeating values. These steps include asset upgrades, core food improvements, and technology investments (to enable digital ordering, delivery and personalize marketing).
These steps position McDonald’s to maintain dietary relevance with American families while maintaining convenience advantages as delivery slowly eclipses the drive-thru as the most convenient restaurant format.
In addition, the company has refranchised restaurants to become more asset light, pushed more restaurants into the best franchisee operator hands, and is in the process of streamlining its corporate reporting structure to move more quickly.
We estimate that McDonald’s can deliver roughly 11%-13% annual total return long-term.
JP Morgan Chase (NYSE:JPM)
JPM is the premier global bank that is a market share leader in nearly all of its businesses. Its Universal Bank model gives it unprecedented diversify of revenue which should lead to stable revenue and earnings growth through an economic cycle.
Tangible growth opportunities: CJT is seeing demand growth in virtually all of its areas, including B2B and ecommerce driven business-to-consumer (B2C).
Strong market position: CJT is uniquely positioned in the time-sensitive overnight cargo segment, with ~95% market share and ~75% contracted volumes.
Set-up for operating leverage: With reduced headcount and optimized fleet, daytime revenue would come on with incremental expenses and wider market.
Brookfield Asset Management (TSX:BAM.A;NYSE:BAM)
We expect the growth in unlisted assets to continue to outpace growth in listed investments. In its capacity as an alternative asset manager, BAM appears to be gaining share within a growing industry.
Over and above the growth in fee bearing capital and fee related earnings, we expect BAM to earn (and compound) a solid return on the capital that is has invested on its own account in global property, renewable power, infrastructure and private equity.
LVMH (NASDAQ:LVMHF) has leading market position across all product luxury categories, best in class management and is investing to become the biggest sector winner in digital by 2025.
Most balanced and diversified portfolio in the luxury sector with unique marketing investment firepower.
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