Investors have been selling out of equities and into alternative assets, but there are still high-quality stocks that can weather the storm, according to Brewin Dolphin senior investment manager John Moore.
The past few months have been difficult for investors to navigate as higher inflation and interest rate worries to start the year were compounded by Russia’ invasion of Ukraine last month.
With all this negative news, more than half of Trustnet readers said they would not be adding to their ISAs before the 6 April deadline, but Moore said some companies such as US tech firm Microsoft, UK pharma giant GlaxoSmithKline and drinks business Diageo, all have the potential to hold up well in the uncertainty for those that did want to invest this month.
“Our smart advice remains, as it always has been, to stay focused on the long term and gradually invest in a broad portfolio of assets that can provide risk-adjusted returns,” he said.
Below, Moore highlighted five companies that not only make for capital protectors now, but should also thrive in the coming years.
Greencoat UK Wind
As its name suggests, the Greencoat UK Wind trust invests in wind energy infrastructure in the UK, with most sites located in Scotland (46%) and England (38%).
It has made a total return of 136.4% since its launch in 2013, beating the IT Renewable sector by 43.6 percentage points and has also been a top-quartile performer over the past year, up 20.8% leading to a hefty share price premium of 11.8%.
Total return of trust vs sector over past year
Source: FE Analytics
While the high premium may be off-putting to some investors, Moore said: “At least part of the reason for this is that it provides investors with a way of offsetting rising energy prices and delivering RPI-linked increases to its dividend, with a current yield of around 5%.”
Diageo
Alcoholic drinks company Diageo – which owns well-known brands such as Guinness, Smirnoff and Tanqueray Gin – has recorded positive inflows over the past couple of years despite the pandemic.
In the last six months of 2021, organic net sales increased 20% to £80bn and this momentum is anticipated to continue through into this year.
The company said that supply chain issues caused by Covid will likely continue to create some disruptions moving forward but expects “consumer demand to remain resilient”.
Diageo’s share price is up 14.7% over the past year, but are down 18% since the start of 2022 as markets have become more volatile. Last week the brewer paused all exports to Russia and Ukraine due to the conflict in Eastern Europe.
Despite its recent difficulties, Moore said: “Diageo continues to invest in broadening the reach and appeal of its brands, while also having the financial muscle to finance acquisition opportunities, buy back stock, and pay out a dividend of around 2%.”
GlaxoSmithKline
Healthcare company, GlaxoSmithKline (GSK) recorded net sales of £34bn in 2021, and shares responded well, up 18.4% over the past year.
Cashflow remained strong during the pandemic, with GSK making £1.4bn from Covid-related medicines, but the company is under pressure from activist investors such as Elliott Management and Bluebell Capital Partners to sell the consumer arm of the business.
This branch, which includes brands such as Sensodyne toothpaste, Voltaren and Panadol painkillers (set to be listed under the single name ‘Haleon’ this summer) received a £50bn bid offer from Unilever in December but was rejected for being too low.
Moore said that the acquisition “may mean reduced dividends in the short term – which currently stand at more than 5% – but it should lead to improved capital returns from both sides of the business in time.”
Share value of company over past year
Source: Google Finance
Microsoft
With so many people reliant on Microsoft’s various services such as Word or Teams, Moore said that the company “has grown to essentially become a utility”.
Its base services were essential for remote working when the world went into lockdown, leading to an 346.4% share price rise over the past five years.
The fact that the technology giant is so well established puts it in a strong position, giving it “the advantage of pricing power over many of its rivals and a strong balance sheet to support future innovation and acquisitions.”
One such acquisition was its recent purchase of video game developer Activision Blizzard worth an estimated $68.7bn (£52.1bn). The company responsible for franchises such as Call of Duty and World of Warcraft could give Microsoft a new edge in a different field.
Experian
Credit checking company, Experian is likely to see an increase in usership as higher market volatility leads more consumers to keep track of their credit score, according to Moore.
Furthermore, the company’s rapid expansion abroad, particularly in Latin America, suggests there is significant growth potential.
Share value of company over past year
Source: Google Finance
With the share price down 22.4% since the start of the year, Moore said that now is a good time to buy whilst valuations are cheap, a strategy also used by Nick Train, manager of the Finsbury Growth trust, who bought into the Experian last month.