3 Data-Driven Stock Picks

VIDEO: Killik & Co's Rachel Winter talks big data in her latest batch of stock picks

Holly Black 11/08/2020 17:29:00
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Holly Black: Welcome to Morningstar's 3 Stock Picks. I'm Holly Black. With me is Rachel Winter. She is Investment Director at Killik & Co. Hello.

Rachel Winter: Hi, Holly.

Black: So, your job is to find us three stocks each month that are on your buy list. Where would you like to start today?

Winter: I'm going to start with Experian, which is a big UK company. And you probably know Experian for its credit reports. So, how it works is, banks will give their data to Experian and Experian will amalgamate that data into various credit reports for individual customers. So, as a result, Experian has credit data on 1.3 billion people around the world. So, the company has huge amounts of data. But the opportunity here is that as technology advances, Experian can do a lot more with that data. So, increasingly, we are seeing that Experian now has the analytical tools to be able to analyze that data and do things like giving a decision or an opinion on whether or not a customer should be given a loan by a bank. So, the things that Experian can do with this data are really expanding because of this progress in tech.

Black: How does it make money out of that? Obviously, it's got all of our data. But I'm not paying for it, I hope.

Winter: The bank is paying for it. So, previously, the bank would have paid for a simple credit report and now, the banks are paying even more for a decision or an opinion on whether or not that loan should be approved.

Black: Okay. On to stock number two then.

Winter: Stock two is another one that's doing really well from the analysis of data. So, the second stock is Salesforce which is a global leader in CRM, which is, customer relationship management. And what Salesforce is doing is helping companies to store and to analyze and to make decisions based on the customer data that they have. So, the tools that Salesforce is giving these companies are helping the companies to better understand and therefore to better serve their customers and that enables them to sell more effectively to their customers. So, companies are better able to serve their customers and to make money from them because of these analytical tools that Salesforce is providing.

Black: I always think this must be a real sticky revenue base as well, because once a company has that sort of software embedded, it is a huge decision and effort to move anywhere else.

Winter: Absolutely. So, to get all of your existing data on to one of these platforms it can take months and it's very expensive to do. So, once you've done it, you are very unlikely to move elsewhere to another analytics or data provider.

Black: Okay. And what is our final stock today?

Winter: Final one is called Danaher. So, this is an American healthcare company. It's really a conglomerate of about 20 different operating companies, but we like it for its exposure to two different areas and those are life sciences and diagnostics. So, in the life sciences division Danaher is trying to understand the different causes of various diseases and it's also testing new drugs. So, this part of the business has done really well from this race to find a coronavirus vaccine. And then, we also like the diagnostics division. And this is benefiting from this drive to become more efficient in the healthcare sector overall. So, what we are seeing is that healthcare companies and healthcare bodies are trying to spend less money on waste of treatments. So, by using more accurate diagnostic tools they are not spending money on drugs that may or not be for right illness. If they've got these diagnostics tools in place, they know exactly what is wrong with their patients and they can prescribe exactly the right drug and that really reduces wastage and reduces cost in the whole healthcare sector.

Black: I feel like the healthcare sector has got such a tailwind at the moment from coronavirus. But could the entire sector ease off as if a vaccine is found or it just sort of dissipates and people aren't as interested anymore?

Winter: I think you have to be careful about what part you are investing in. So, for example, if you're just trying to pick the one company that's going to discover and produce the coronavirus vaccine, you could argue that will just be a temporary benefit. So, I'd be wary of investing in that. But I think this drive to be more efficient generally in healthcare I think that is very much a long-term theme that will be with us for years. So, that's the kind of thing that we are looking for when we're deciding which healthcare companies to invest in.

Black: And that presumably is a big area of investment for governments as well because they need to manage their aging populations and how we treat people as they get older?

Winter: Absolutely. So, healthcare costs for governments have skyrocketed over the last 20 years or so and it's not sustainable. So, these governments need to find ways of reducing their spending on healthcare whilst still looking after their patients. So, things like the products that Danaher offers that can really lead to improvements in efficiency really are what governments are looking for at the moment.

Black: Rachel, thank you so much for your time. For Morningstar, I'm Holly Black.

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Holly Black

Holly Black  is Senior Editor, Morningstar.co.uk


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