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Three stocks for a high-quality portfolio

Clay Carter

In this article Macrovue’s investment committee looks at three high quality global companies that have the potential for a high rate of dividend growth going forward based on superior earnings growth and cash flow generation.


Microsoft (NASDAQ: MSFT)

Microsoft is now the most valuable U.S. company. After a recent 10% rally, the software company’s market capitalisation is now well above US$1 trillion. Amazon is #2 at US$916Bn and Apple #3 with a market cap of US$886Bn.

Investor optimism about Microsoft’s cloud services business is among the factors behind its shares’ rise. MSFT was literally “dead money” for nearly a decade (see chart) before Satya Nadella took over as CEO in February 2014.

Microsoft had missed out on the mobile phone boom, failed to provide any competition whatsoever to Google’s search business and utterly ignored social networking. For years, Microsoft was considered a “PC-centric” company depending on its legacy Windows operating system and Office software.
Under the new CEO, however, the company has rebounded. Nadella has turned the business model on its head with Office 360 and notably brought extra focus on cloud computing, with Microsoft’s Azure offering proving a serious competitor to Amazon Web Services.

Microsoft is now the #2 player in the global cloud infrastructure services market with a 17% share in 2018, according to industry research firm Canalys. Market leader Amazon Web Services had a 32% share.

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Source: Bloomberg
 

McDonalds (NYSE: MCD)

UBS Evidence Lab conducted a survey of 2,029 adult consumers who visited a fast-casual restaurant at least once a month. It found that McDonald’s is the best positioned among its peers to continue delivering strong same-store sales and traffic.

“Consumers continue to have particularly favourable perceptions of the brand and are inclined to increase visits going forward, w/ MCD focused on sales drivers that should resonate with consumers,” analyst Dennis Geiger wrote in a note to clients.

The survey revealed that among the different fast-food brands, McDonald’s was the favourite by a wide margin in several different categories. “McDonald’s U.S. brand strength remains robust, with MCD outperforming peers across a number of important customer perception metrics. We note MCD performed favourably in value, promotion, and speed of service attributes – all of which are areas of focus for MCD and the QSR industry in general,” Geiger said.

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Pfizer (NYSE: PFE)

On 13 June 2019, Pfizer announced positive data from a study, which was conducted to demonstrate the efficacy of its Janus kinase inhibitor (JAK). Xeljanz extended release as a monotherapy after withdrawing use of methotrexate (MTX) in adults with moderately-to-severely active rheumatoid arthritis (RA).

The phase III/IV ORAL Shift study was conducted to evaluate the efficacy and safety of Xeljanz XR 11 mg once daily (QD) as monotherapy after MTX withdrawal compared with Xeljanz XR with continued MTX in RA patients who achieved low disease activity after combination therapy. Data from the study showed that at week 48, Xeljanz XR after MTX withdrawal was just as effective compared with Xeljanz XR with continued MTX as measured by the primary endpoint. The primary endpoint of the study was to measure the change in the Disease Activity Score from randomisation at week 24 to the end of the double-blind MTX withdrawal phase at week 48. The results of the study, if approved to be included in the label, will give doctors the option to prescribe Xeljanz to RA patients who are unable or unwilling to use MTX. (73 percent of RA patients who used MTX experienced at least one side effect.)

Xeljanz is a major drug in Pfizer’s portfolio. Xeljanz recorded sales of $423 million in the first quarter of 2019, up 34% year over year. Sales growth was driven by continued growth in Rheumatoid Arthritis revenues and contributions from the drug's recent expansion into psoriatic arthritis and ulcerative colitis in the United States and only ulcerative colitis in certain developed markets. Xeljanz was approved in the United States for new indications, psoriatic arthritis in December 2017 and ulcerative colitis in May 2018. Xeljanz is also being evaluated in late-stage studies for ankylosing spondylitis.

 



You can invest in these companies directly through Macrovue's High Quality share portfolio.

This portfolio has returned +20.32% over the last 12 months (to 2 July 2019). 

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Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual and does not constitute financial advice. Consider the appropriateness of the information in regards to your circumstances.

Past performance is not a reliable indicator of future performance. 

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