Emma Wall: Hello, and welcome to Morningstar. I'm Emma Wall and I'm joined today by Rachel Winter from Killik to give her three stock picks.
Rachel Winter: Hi, Emma.
Wall: So, what's the first stock today?
Winter: First stock is Delta Air Lines (DAL). This is a US-based airlines company, one of the largest airlines in the world, very reliable. It's got one of the best statistics for reliability in the world. We've been looking at airlines recently because there has been a huge increase in demand over the last few years for air travel and that's something we think is going to continue, but there's also been a lot of consolidation within the industry in terms of companies. So, we think that's good for the companies that are left, and Delta is one that we think is the best-positioned.
Wall: And presumably, a stock that is ready to benefit from the fact that US economy still looks pretty positive.
Winter: Yeah. Most of their business comes from domestically in the US. They run 5,400 flights per day. They do also have an international business. They have a stake in Air France, KLM and also in Virgin Atlantic. But what we like about them the most is the valuation, trading on 9 times price to earnings. So, that's incredibly low compared to the wider market.
Wall: And what's the second stock today?
Winter: Second stock is BP (BP), which may not seem particularly exciting, but we think it's quite relevant at the moment because the oil price has hit a two-year high. So, that's obviously good for BP. Obviously, the oil price was over $100 a barrel for nearly three years between 2011 and 2014. Now, that the oil price is only about $64, people are thinking, can the oil companies really be making that much profit? But actually, the answer for BP is very much yes. They have been incredibly successful at cutting costs out of their model and therefore, they have actually said now that at $49 per barrel, they can afford to pay their dividend, which is 5.9% and they can also afford to spend on capital expenditure.
Wall: And that's a key point, isn't it? Because these companies were being run as if oil would always be at $120 and it's been a difficult few years, but a number of them, and it sounds like BP included, have actually reevaluated their base case.
Winter: Yeah, exactly. So, for some oil companies, particularly ones that are heavily involved around the North Sea, there it is quite expensive to extract oil, but BP is a low-cost producer and at $49 per barrel and even now at $64, it definitely can make a profit.
Wall: And what's the third and final stock?
Winter: Third stock is another US company. It's called Intuit (INTU). Quite large. It's worth about $38 billion. It's a very large software development company and it focuses on software for accounting, particularly for small businesses and the self-employed. And the self-employed angle is what we like. Because we are seeing a big trend toward self-employment. For example, we have got people setting up businesses online, people writing blogs and making money from that and also the gig economy. We've got lots of people working for Uber and Deliveroo. All of those people are self-employed. Therefore, they need to do their own tax returns and therefore, they need accounting software.
Wall: And this is a US-listed company. But does it have a global reach because the gig economy doesn't just exist in the US, it's huge in the UK too, isn't it?
Winter: Exactly. It's a worldwide phenomenon. Intuit, yes, it is based in the US, but it is expanding very quickly overseas. It does have quite a large presence in the UK. But at the moment, the overseas part of the business is what's expanding the most quickly.
Wall: Rachel, thank you very much. This is Emma Wall for Morningstar. Thank you for watching.
The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.