Australia Strategy: Global leaders – COVID vaccine to fuel further upside

About the author:

Tom Sartor
Author name:
By Tom Sartor
Job title:
Senior Analyst
Date posted:
23 November 2020, 2:20 PM
Sectors Covered:
Resources, Metals

  • The dominant global technology and consumer franchises are leveraging COVID inspired structural shifts and continue to lead the market recovery.
  • Q3 results confirm many of these businesses continue to capitalise on the acceleration of consumer trends in areas including e commerce, cloud computing, payments and gaming.
  • Greater regulatory scrutiny is a growing risk to monitor, although recent and exceptional progress toward a COVID vaccine is a significant positive offset capable of sustaining recent momentum.
  • Despite their recent strength, key US facing names still offer ~12-15% upside potential, with 20-40% still possible in the Asia facing giants Alibaba and Tencent.

The world’s best businesses using COVID as an opportunity

The franchises operated by the world’s dominant consumer and technology stocks provide the ability to benefit, rather than suffer from, the structural shifts being amplified by the pandemic.

The recent 3Q results from the likes of Apple, Amazon and Alibaba confirmed the pandemic continues to accelerate the migration of demand into areas including e-commerce (retail), cloud computing (working from home, analytics, cyber security), digital media (social, entertainment, gaming) and payments (consumer, SMEs, fintechs).

The companies profiled in our full detailed research note are at the leading edge in these areas. Their size, market share and competitive advantages offer downside protection, and the ability to best leverage longer term structural growth in these areas.

Vaccine development to fuel further momentum

Investor enthusiasm for these names has recently been dampened by the threat of increasing regulatory scrutiny (tax, anti-trust, competition), not only under a Biden-led US government but also by the CCP.

These risks will likely be slow to unfold, and look likely to be offset by exceptional progress during the quarter toward an effective COVID-19 vaccine. The leading consumer and tech stocks have been choppy in recent months, but the cohort has snapped back up to fresh highs, maintaining their strong outperformance versus the broader market since the COVID lows in March.

However these stocks still offer ~8-20% upside potential and the average five-year compound annual growth in EPS for these stocks remains a whopping 27%, with COVID playing into their competitive advantages in many cases.

We profile the 10 global leaders

Morgans clients can login to view our analysis on:

  • Apple
  • Amazon
  • Alphabet
  • Microsoft
  • Visa
  • Mastercard
  • PayPal
  • Berkshire Hathaway
  • Alibaba
  • Tencent
Access full research note 

Improved direct access to international leaders

In our last International Strategy Update, we discussed the limitations of investing only in Australian equities (concentration risk, sub-optimal growth exposure) and the clear benefits of investing in International equities (diversification, access to different economic cycles and thematics like Technology).

Transferable custody receipts – or TraCRs – allow Australian investors to gain easy investment exposure to global household names. Ask your Morgans adviser about TraCRs to get started.

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Disclaimer: Analyst may own shares. The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents ("Morgans") do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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