Barron's, a famous weekly financial newspaper, organizes an annual roundtable with prominent U.S. investors where they discuss the market and give their opinions on their best ideas for stocks.
In this article, we will discuss the four stock ideas that were recently put forward by Todd Ahlsten, the chief investment officer (CIO) of Parnassus Investments and lead portfolio manager of the Parnassus Core Equity Fund, at Barron's roundtable.
Ahlsten think there is a real risk of inflation spiking, which will in turn lead to higher volatility in the market. Thus, he favors companies with high quality earnings and less cyclicality. Investors should note that Parnassus is an ESG (Environment, Social and Governance) focused fund, which influences its investment decisions.
Ahlsten suggested these four stocks:
- S&P Global (SPGI, Financial)
- American Tower (AMT, Financial)
- Boston Scientific (BSX, Financial)
- Becton, Dickinson (BDX, Financial)
S&P Global
S&P Global (SPGI, Financial) is a major bond rating agency and a provider of financial analytics data. It is in the process of acquiring IHS Markit, another provider of market analytics. It is a developing a strong franchise in ESG data and ratings. Also, the company is building its presence in China with a growing bond rating market. Ahlsten thinks the stock can continue to deliver 15% per annum over the next several years.
The GF Value chart considers the stock to be modestly overvalued. However, this is a very high quality company with an asset-light model and a huge runway of growth.
The company has posted impressive growth numbers over the last decade:
| Annual Rates (per share) | 10 yrs* | 5 yrs* | 12 months* |
| Revenue Growth (%) | 9.60 | 9.20 | 12.80 |
| EBITDA Growth (%) | 18.60 | 10.30 | 6.50 |
| Operating Income Growth (%) | 20.00 | 15.90 | 13.60 |
| EPS without NRI Growth (%) | N/A | 14.30 | 6.30 |
| Free Cash Flow Growth (%) | 21.80 | 60.80 | 18.80 |
| Book Value Growth (%) | -9.70 | 13.70 | N/A |
The stock is priced high with a price-earnings ratio over 40, but this may be justified by the company's impressive growth, dominance and profitability. S&P Global is also held by Ballie Gifford and Daniel Loeb (Trades, Portfolio).
American Tower
American Tower Corp (AMT, Financial) is a dominant cell phone tower company is the U.S. and is the largest of its type in the world. It is also rated as modestly overvalued by the GF Value chart.
Historical growth rates are impressive. Ahlsten thinks this will continue with the roll-out of 5G, and the company has a long runway given the increasing importance of mobile data driven technologies like autonomous driving and internet of things. More and more data processing is moving to the edge of the network in order to reduce lag time, and American Tower is well positioned to serve the needs of these mobile devices. He notes that the company has a wide competitive moat and strong pricing power.
Below are the company's growth rates:
| Annual Rates (per share) | 10 yrs* | 5 yrs* | 12 months* |
| Revenue Growth (%) | 14.20 | 9.40 | 5.70 |
| EBITDA Growth (%) | 13.50 | 9.20 | 5.00 |
| Operating Income Growth (%) | 13.00 | 13.20 | 9.00 |
| EPS without NRI Growth (%) | 15.50 | 23.10 | 0.90 |
| Free Cash Flow Growth (%) | 17.30 | 12.90 | 8.90 |
| Book Value Growth (%) | 3.50 | 3.50 | 6.5 |
Boston Scientific
Boston Scientific (BSX, Financial) is a medical devices company with a strong franchise in cardiac devices. Sales have declined recently as many elective surgeries were deferred due to the Covid pandemic, but are set to bounce back strongly in the short run. The company also had some setbacks in product approvals but is working through them. The GF Value chart rates Boston Scientific as fairly valued.
Boston Scientific has a forward price-earnings ratio of 26.5. Growth is much less impressive than the previous two names:
| Annual Rates (per share) | 10 yrs* | 5 yrs* | 12 months* |
| Revenue Growth (%) | 4.30 | 5.50 | -7.10 |
| EBITDA Growth (%) | N/A | 25.20 | -6.70 |
| Operating Income Growth (%) | 3.90 | -3.60 | -48.70 |
| EPS without NRI Growth (%) | N/A | N/A | -96.70 |
| Free Cash Flow Growth (%) | N/A | N/A | 64.60 |
| Book Value Growth (%) | 3.30 | 20.40 | 12.2 |
However, Ahlsten thinks that the company has a long runway of growth due to the aging demographics of the U.s. The company has a good pipeline of tuck-in acquisitions.
Becton, Dickinson
Becton, Dickinson (BDX, Financial) is a large lab equipment and consumables supplier for the medical and life sciences sectors. Ahlsten mentions that 85% of its business comes from consumables, so it operates a wide-moat model. Once a proprietary instrument is sold to a lab, they get locked in in purchasing consumables like reagents and test strips as well as software updates and maintenance. The company had a great year last year due to Covid tailwinds and related instrument and consumables demand, but sales are expected to be flat this year. However organic growth should resume next year.
Below are the company's growth rates:
| Annual Rates (per share) | 10 yrs* | 5 yrs* | 12 months* |
| Revenue Growth (%) | 8.00 | 4.10 | 2.10 |
| EBITDA Growth (%) | 4.90 | 7.10 | 12.50 |
| Operating Income Growth (%) | 1.20 | -3.30 | 16.80 |
| EPS without NRI Growth (%) | -9.30 | -9.50 | 69.30 |
| Free Cash Flow Growth (%) | 7.40 | 8.30 | 55.70 |
| Book Value Growth (%) | 16.70 | 22.30 | 10.70 |
Becton, Dickinson has a forward price-earnings ratio around 19, which is reasonable for a long-term compounder.
Conclusion
The stock suggestions presented by Ahlsten are all interesting ideas, in my opinion. S&P Global and American Tower are plays on data. As they say, data is the new oil and these company's sit on a gusher. The only trouble is that you must pay up for them. I would put them on a watchlist and look for better opportunities to get in.
Boston Scientific and Becton, Dickinson are plays on aging demographics in the U.S. and other developed countries. Both these company's look attractive to me as well at the current prices.
