Top 3 global small caps

Invesco's Virginia Au revisits her top three picks for stocks boasting small business success

Ruth Saldanha 13 March, 2020 | 1:45AM
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Ruth Saldanha: We recently talked about the global small cap space. And if you want to invest there, what are some of the stock ideas to consider? Virginia Au, our Vice President and Portfolio Manager of the Bronze-rated Invesco Global Small Companies Fund is here today to give us her top three picks in the space.

Virginia, thank you so much for being here today.

Virginia Au: Thank you. I'm delighted to be here.

Saldanha: Your first pick is Nuance Communications (NUAN). It's a U.S.-based AI company that's up almost 50% from last year. Do you still like it at these prices?

Au: Yes, Nuance has done well, and we continue to like it. Nuance is the dominant speech recognition software in healthcare and enterprise. They are about to launch a number of voice-enabled AI-assisted products. The biggest one is called ambient clinical intelligence, ACI to be short. ACI basically transcribe the conversation between a physician and a patient and organizes that into clinical notes, and then integrate that into the hospital's electronic health record system in real time. So, think about it as having the Amazon Alexa in the doctor's office. So, it really improves productivity and alleviates the heavy documentation burden for physician. And we think that Nuance is really the only one with all the building blocks to build this product. They have decades of voice recognition expertise from multiple industries. They also have a large data advantage in healthcare, because 50% of physicians in the U.S. already used their existing transcription product. And on top of all this, they have a partnership with Microsoft to roll out this product. So, again, this is why we are very excited about this new potentially blockbuster product that they're introducing this year. We continue to be very excited about it because we do believe that this is a game-changer.

Saldanha: Your second pick is Equiniti (EQIX). Now, this is a company that you liked last year as well, and it was one of your top picks then too. What do you continue to like about this company?

Au: Yeah, this is a U.K. company as you pointed out, and U.K. has been a neglected market by investors because of the Brexit uncertainty. Equiniti is a leader in what they do. They are a share registry and employee stock plan administrator. They're the largest one in the U.K. As you can imagine, for a large public company, keeping track of shareholders' information for dividend payment or for proxy voting is not easy. So, the barriers to entry is extremely high. You need a robust software system and also deal with heavy regulation. And another advantage for this business is that it's a very sticky business. There's very high recurring revenue. And Equiniti is bringing their expertise into the U.S. through an acquisition, which is a much larger market for them. So, we like the fundamentals for this company. It's currently growing at high single digit and it's only trading at 11 times this year’s earnings. So, we still think this is very attractive and this is a good example of the extensive research we do to identify really the long-term secular growth for an industry leader.

Saldanha: Your final pick is Australian Corporate Travel Management (CTD). Now before we talk about why you like this company in the long-term, can you tell us what the impact of something like the coronavirus would be on this company, especially in the short-term?

Au: Yes, this is definitely a controversial name and because the uncertainty around coronavirus is still in the air, the short-term impact is unknown. And that's why the stock actually has been hit dramatically in the last month. So, no doubt, this is not for the faint of heart. But based on the experience of past pandemic, we see that once the peak impact subsides, corporate travel activity actually comes back rather quickly. And Corporate Travel Management is the travel agency for corporate travel for clients around the world. So, we expect the long-term impact of this to be smaller because in the long-term, their competitive advantage, the competitive landscape and the industry structure change very little. So, we continue to like it. They continue to win market share through their proprietary software and they also benefit from scale when they get bigger with larger discounts from their supplier. In terms of downside protection, they don't have any debt. And this is a highly cash generative business. So, I think we're protected that way in the near-term. So, I think this is a really good opportunity to actually buy a long-term compounder.

Saldanha: Thank you so much for joining us today, Virginia.

Au: Thank you.

Saldanha: For Morningstar, I am Ruth Saldanha.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Corporate Travel Management Ltd24.33 AUD0.87
Equinix Inc821.02 USD1.34Rating
Nuance Communications Inc55.11 USD-0.04

About Author

Ruth Saldanha

Ruth Saldanha  is Senior Editor at Morningstar.ca. Follow her on Twitter @KarishmaRuth.

 
 
 

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