An investor’s guide to Christmas gifts

As the countdown to Christmas continues and people everywhere are frantically looking for items that can be delivered before the big day, we thought it would be fun to ask some Elite Rated managers what gift-related stocks they have in their portfolios.

Forget gold, frankincense and myrrh… From games and gadgets to socks and jewellery, they’ve got even the most difficult relative covered.

Torcail Stewart, Baillie Gifford Strategic Bond

Hasbro: something for the kids

“Hasbro is the second largest toy manufacturer in the US. It makes board games like Monopoly, Connect4 and Scrabble and has a range of toy brands which has grown over the decades including Transformers, Nerf, Twister, Play-Doh, and My Little Pony. It also produces toys under license from other companies like Disney, making Star Wars, Marvel, and Disney Princess figurines.

“Hasbro has a long history of being run with a fairly conservative balance sheet. Thus, the recent elevated levels of debt from Hasbro’s acquisition of Canadian media producer Entertainment One, will likely normalise with time. Entertainment One is a business we have lent to in the past and has strong revenue streams derived not only from original programming such as Peppa Pig or PJ Masks, but also excellence in entertainment production and distribution. We see the combination with Entertainment One being an apt acquisition and believe Hasbro bonds are likely to perform well as debt levels reduce with time.”

Hugh Sergeant, ES R&M UK Recovery

Nintendo: something for the gamers

“Nintendo has been a strong beneficiary of the stay at home trend. The Switch console platform has already turned into one of its most successful, providing further confidence that the company is in the right track to continue monetising its world leading game IP (intellectual property).

“Despite the stock price rally year to date, we believe timing is turning increasingly supportive as 2021 should come with a strong new game release pipeline after a relatively weaker one in 2020 and increasing speculation about the launch of an updated, more powerful Switch model.”

Will Searle, Marlborough European Multi-Cap

Pandora: something for someone special

“Danish company Pandora is one of the world’s largest jewellery brands, selling its affordable items in more than 100 countries, and is positioned for strong growth again after new management took the reins two years ago. They’ve steered Pandora back on course, with a stronger focus on online sales, alongside bricks and mortar stores, and reinvestment in the company’s core product range, which is charm bracelets. These charms represent around 70% of sales and the company has launched new ranges including Harry Potter, Frozen and Star Wars.

“There’s been a huge reorganisation of the business, which should be completed by the end of 2020. We believe this overhaul means Pandora is in better shape than ever today and, with the transformation complete, management will now be able to devote their full energies to growth.”

Joanna Kwok, JPM Asia Growth

Samsung Electronics: something for the screen addict

“Samsung is a global leader in technology founded in Korea. One of the most striking things about the company is that its major profit drivers are all businesses it has been in for a long time: TVs since 1969, semiconductors since 1974 and mobile phones since 1988.

“The economics of the business look well underpinned. Its fastest growing businesses, mobile devices and system LSI, both offer margins significantly above the rest of the group suggesting the economics of the business should persist. The company is best-in-class operationally by some margin in several of its businesses and continues to go from strength to strength across its different lines with ever larger gaps in memory relative to peers.”

Alex Wright, Fidelity Special Values

Halfords: something for the motorhead

“As the biggest national motoring/bicycle retailer, Halfords has been a key beneficiary of the pandemic through robust bike, auto care, servicing and staycation-related demand, as people looked to exercise more during the pandemic and avoid public transport. The company has reported strong results and demonstrated its strength by ensuring good stock availability, improved service and customer offers.

“The Covid crisis has accelerated disruption in retail, with companies with good store footprint and a well invested online presence like Halfords continuing to gain market share and becoming the ‘last man standing’ in their space. The growth in its autocentres business, especially via its mobile services, adds a high quality underappreciated second leg to the story.”

Andy Marsh, Artemis Income

Next: something to wear

“Those of you who wear glasses will know the feeling when you are looking for them only to realise that you are wearing them. And so it is with Next. It is not uncommon for us to extensively investigate a range of less conventional sources in our quest for new investment angles, but here we did not need to look any further than the company’s annual report, where the case is spelled out in fine detail by CEO Simon Wolfson. Yes, there were other sources and channel checks that we made, but these were to an extent, to paraphrase Simon, the froth on the beer.

“Next has been more astute in recent years and is now one of a select group of retail platforms that are expert in both physical and digital routes to market. The potential is to grow cash flow by using the platform as a multichannel department store, not just wuth existing Next products but with third party brands that can improve their fortunes by using all that the Next platform has to offer. What is more, this is not just for UK customers, as Next attracts plenty of custom from overseas.

“It would not be a welcome trend for all CEO’s to set out the investment case so clearly, as our skills as stock pickers would go the same way as telephone boxes, but once in a while, if you bother to look, you’ll realise the answer is right before your eyes.”

Hugh Sergeant, ES R&M UK Recovery

Marks and Spencer: pants and socks for Uncle Joe

“M&S has become very unloved, as challenging end markets and an unsuccessful turnaround have resulted in it underperforming the UK market for a number of years. The share price is close to a 30 year low, despite its freehold asset backing, which we believe underappreciates the strength of its franchise.

“Cushioned by a robust balance sheet, we expect M&S to emerge in a stronger market position post lockdown, with the benefits of cost saving programmes under the new management team and a joint venture with Ocado supporting its recovery potential.”

Chris Elliott, TB Evenlode Global Income

eBay: something for everyone else

“Christmas shopping in 2020 will see many consumers spending more online than in physical stores. A key beneficiary of this trend will be eBay, following actions to help sellers move online earlier in lockdown. eBay deferred fees for small and medium sized businesses, increased free listings and protected seller reputation metrics against supply chain delays. The platform also helped set up eBay stores for a significant portion of the 70% of US businesses that have no digital presence, waiving selling fees for three months.

“The repayment for this $200m investment has been a stronger than ever network of sellers and buyers. This is expected to power eBay to record sales over the festive period, matching the Christmas Day surfeit.”