Financial planning advisory Killik & Co’s senior equity analyst Mark Nelson has given five top stock picks to “weather the storm” as winter approaches.
They include Schneider Electric, Ecolab (NYSE:ECL), Intuit Inc. (NASDAQ:INTU), The Walt Disney Company (NYSE:DIS) and luxury fashion brand LVMH Moët Hennessy Louis Vuitton.
Nelson said these stocks are “expected to weather the uncertainty and generate strong returns going forward”, as opinions on the future of the market remain divided.
Schneider Electric
Energy and automation solution provider Schneider Electric's stock has the opportunity for structural growth amid a move towards decarbonisation and digitalisation, Nelson said.
He said he expects the industrial automation business to grow as companies increasingly invest in automation to improve operating efficiencies, supported by its software businesses Aveva and OSIsoft.
“We also view Schneider Electric’s shares as being relatively defensive, with high levels of cash generation supporting a healthy dividend which is supplemented by share buybacks,” Nelson said.
“The shares trade on a price to December 2024 earnings ratio of 17.9x, an attractive valuation for a business that we believe can grow its earnings at a low double-digit growth rate over the medium term.”
Ecolab (NYSE:ECL)
Clean water company Ecolab (NYSE:ECL) has a “long runway” to increase penetration in the global addressable market and could benefit from a “pandemic bounce back”, according to Nelson.
It is more than four times the size of its nearest competitor but has a tenth of the share of the US$152 billion addressable market globally.
Although the COVID-19 pandemic had a positive effect on demand for hygiene and sanitation in workplaces, leisure and tourism customers suffered from forced closures.
Ecolab (NYSE:ECL) said on its recent investor day that it had raised prices to compensate for higher inflation costs, helping to make its shares “attractively valued”, according to Nelson, who predicts the company's earnings per share will compound at low to mid-teens in the coming years.
Walt Disney
Disney has plans to invest US$60 billion in expanding and enhancing its amusement parks and cruise line capacity globally, it said at an investor summit in September.
Its domestic theme parks are a crucial “profit driver”, Nelson said, due to a boost in park attendance and higher profits resulting from prior investments.
Among its growth plans, it is due to launch three new cruise ships in the coming years.
LVMH
Luxury goods remain an “attractive” area for investment, according to Nelson, as long-term demand is expected to be supported by growing wealth in emerging economies.
Nelson said LVMH’s shares represent a good entry point into a company that provides “defensive exposure to the luxury sector”, given its earnings ratio priced through to December 2024.
Intuit
The financial software business, which operates QuickBooks and TurboTax DIY accounting and tax preparation software platforms, benefits from “strong competitive positions” and “defensive revenue streams”, Nelson said.
Intuit is positioning itself as a one-stop-shop for tax and accounting, after buying consumer finance technology platform Credit Karma.
Nelson said its shares are up 40% for the year to date, trading on about 33 times its estimated July 2024 earnings.