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Expert View special: Citi's 50 'world champion' stocks
by Harry Brooks on Feb 22, 2013 at 05:01
In a special edition of the Expert View, we name Citi Research's top 50 stock picks – including four London-listed names.
How Citi compiled this list
Citi Research, the analyst arm of Citigroup, the US bank, has put together a list of 50 'World Champion' stocks from the universe of companies covered by Citi analysts around the world. Citi Research teams nominated 185 companies that formed 10 previous World Champion sector reports, and this list has been narrowed further to a final Global basket of 50.
To be considered for inclusion, the stocks had to fulfil the following selection criteria:
- Market valuation of at least $3 billion (£1.9 billion)
- At least a top-three market share in a third of their businesses
- A global reach as measured by significant revenue outside of their respective home market
Aberdeen Asset Management
The first London-listed stock on Citi's list is well-known investment group Aberdeen Asset Management (ADN.L).
Even though the fund manager has already seen impressive share price performance in recent years, Citi's analysts still think there's further to go. 'We forecast only 8% per annum average growth in assets under management from September 2012 to 2015, but this drives 11% per annum forecast average growth in revenues and 17% per annum growth in earnings per share over the same period,' the analysts note.
'Longer term, we worry about the sustainability of these fund flows in the face of Aberdeen's capacity constraints, particularly in global emerging market equity. Nonetheless, we forecast continuation of the group's ‘virtuous cycle’ of rising revenue margins and earnings expectations until FY15.'
Shares in the group closed at 426.6p on Thursday, down 15.3p or 3.5%.
The second name on Citi's list will be familiar to regular readers of The Expert View: chipmaker ARM Holdings (ARM.L).
'ARM holds a dominant position within the mobile space, as its technology is in use in 90% of smart phones, and more than 95% of tablets worldwide,' the analysts said.
'Across all its targeted end-markets, ARM has steadily gained market share, growing from 17% in 2007 to 30% by 2011.' Citi reckons ARM will generate three-year (2012-2015) compound annual growth rates of 16% for revenue, 22% for earnings and 27% for earnings per share.
Their 'buy' recommendation is based on ARM maintaining its leadership in mobile, evolution of its intellectual property from ‘low-power’ to ‘power-efficient’, and gradual transition to ARM within the wider networking space.
Shares in the group closed at 916p on Thursday, down 35.5p or 3.7%.
British American Tobacco
The world's second-biggest tobacco firm, British American Tobacco (BATS.L), claims a place on Citi's list despite increasing numbers of European consumers stubbing out their cigarettes.
'Arguably BAT has led the changes in the way tobacco is marketed over the past decade,' the analysts note. 'It has the greatest commitment to direct store distribution, and it has led the surge of innovation, for example, introducing capsule products (which allow smokers to change the taste of their cigarettes as they smoke) and pioneering the trend to more modern packaging with slimmer cigarettes.'
On a five-year organic basis (2011-16E) Citi expects a 0.7% compound volume decline, but 5% compound sales growth and 7.5%-8% earnings growth.
'We expect BAT's profits to grow nicely from the strong pricing environment in Brazil and Russia. Volumes in the south of Europe are under unprecedented pressure, but BAT's exposure there is relatively small,' they added.
Shares in the group closed at £34.30 on Thursday, down 43.6p or 1.3%.
Safety testing specialist Intertek (ITRK.L) is the final London-listed name on Citi's list. Analysts at the firm believe barriers to entry in the space are high, and this gives Intertek a powerful advantage.
'Barriers to entry in consumer testing are high, including a global network of labs which facilitates rapid shifts in retailer sourcing patterns and reputation (asymmetry between the low cost of a pro-type test and the financial and reputational damage from a product recall),' the analysts said. 'We are unaware of a credible new global consumer testing entrant over the past decade.'
Citi forecasts sales to grow organically 10% a year between 2012 and 2014, with margins rising. This generates 14% compound annual earnings growth and 16% compound annual earnings per share (EPS) growth. These forecasts exclude bolt-on acquisitions, which typically boost EPS by 2-5% a year, according to the analysts.
Shares in the group closed at £33.19 on Thursday, down 44p or 1.3%.
Citi's top 50 names
|Aberdeen Asset Management (ADN.L)||Google Inc (GOOG)|
|AB-InBev (ABI.BR)||Harley-Davidson Inc (HOG)|
|Accenture Ltd (ACN)||Inditex (ITX.MC)|
|Affiliated Managers Group (AMG)||Intertek (ITRK.L)|
|Amazon.com (AMZN)||Keppel Corp (KPLM.SI)|
|American Tower Corp (AMT)||Las Vegas Sands (LVS)|
|Amphenol Corp (APH)||MasterCard Inc. (MA)|
|ARM Holdings PLC (ARM.L)||Microsoft Corp. (MSFT)|
|Atlas Copco (ATCOa.ST)||Monsanto Co (MON)|
|Blackstone Group L.P. (BX)||MTN Group Limited (MTNJ.J)|
|British American Tobacco PLC (BATS.L)||Nissan Motor (7201)|
|Celgene Corp (CELG)||Novo Nordisk A/S (NOVOb.CO)|
|Cerner Corporation (CERN)||Oracle Corporation (ORCL)|
|CheckPoint Software Technologies, Inc. (CHKP)||Pernod-Ricard (PERP.PA)|
|Coach Inc. (COH)||Philip Morris International (PM)|
|Computershare (CPU.AX)||Polaris Industries (PII)|
|CSL Ltd (CSL.AX)||Qualcomm Inc (QCOM)|
|Cummins Inc. (CMI)||ResMed Inc (RMD.AX)|
|eBay Inc (EBAY)||SAP AG (SAPG.DE)|
|Edenred (EDEN.PA)||Seadrill (SDRL.OL)|
|Estee Lauder Inc (EL)||SQM (SQM)|
|Fanuc (6954)||Tata Consultancy Services (TCS.BO) 108|
|FMC Technologies (FTI)||Uralkali OAO (URKAq.L) 110|
|Fossil Inc (FOSL)||Visa Inc. (V) 112|
|Gilead Sciences Inc (GILD)||VMware, Inc. (VMW) 114|