- Analysts at Jefferies picked 10 businesses that have good management, high barriers to entry, pricing power, strong cash generation or a combination of the four.
- Stocks that display at least one of those characteristics usually post "market-beating returns."
Analysts at Jefferies selected 10 companies that boast excellent management, enjoy high barriers to entry, wield pricing power, consistently generate positive free cash flow, or benefit from some combination of the four.
"In aggregate, stocks flagged for certain combinations of the four aforementioned characteristics have demonstrated market beating returns on a one, three and five-year view," the analysts wrote in a note dated March 8.
Here are the 10 companies that fit the bill:
Airbus will benefit from rising air traffic currently growing at 4.5% to 5%, and robust demand for aircraft in an "oligopolistic" market.
"The Airbus equity story is strong enough to push through short-term disruption to trading and overtly negative news flow," Jefferies analysts said in the note. "Airbus is less risky and able to increase returns to shareholders, perhaps through significant share buy-backs or dividends, with annual free cash flow (FCF) likely to increase significantly" in 2021 and 2022.
Key advantages: High barriers to entry, consistent positive free cash flow generator, "incremental" cash return.
Amplifon is the global leader in hearing aids with more than 11,000 points of sale across 29 countries. The company has the opportunity to expand into new markets and develop products that appeal to more people. It also stands to benefit from a growing and ageing world population, and sales shifting from independent retailers to large chains.
Key advantages: Good management track record, high barriers to entry, consolidation opportunity.
3. Assa Abloy
Assa Abloy designs and manufactures door locks, keypads and other door-opening solutions. It’s likely to benefit from a structural shift away from mechanical locks to electronic and digital ones, Jefferies says, listing "structural drivers" like: growth as digital locks go mainstream, "Internet-of-things," smart-device proliferation, urbanization.
The bank says Assa is working with Apple for the contactless student ID market, and notes that "the digital locks market is still in its infancy, particularly in the US where Assa estimates market penetration is under 10%."
Key advantages: good management and track record, high barriers to entry, pricing power, "consistent" free cash flow generation
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