Nick Train, a great investor, has a genius but simple investment strategy. He picked these two UK shares and reckons they can still soar.
Train, one of the founders of Lindsell Train Limited, is an equity fund manager. With over 30 years of investment experience, he constantly outperforms other portfolio managers. He is considered one of the greatest investors in the UK. You might be wondering what his secret is. Well, his investment strategy is great but simple. Train just picks several great companies and holds their shares forever. These companies should be easy to understand. But they should also be brilliant businesses. Obviously, they should have been great some years ago and should remain so several years from now. Here’re two of his favourite picks. Please note they aren’t small caps that have just had they IPOs. What’s more, their market caps have not grown just because of the coronavirus lockdown.
Diageo (LSE:DGE), a soft drinks producer, also owns Guinness, Johnnie Walker, and Tanqueray. Nick Train adores Diageo because it’s a well-established company and one of the sector’s leaders. The brands it owns are recognisable all over the world. The large scale allowed the corporation to grow its sales and stay profitable for many years. But, unfortunately, it suffered somewhat as a result of the pandemic. The thing is that it’s pointless for bars, pubs, and restaurants to order lots of alcohol nowadays. Although some restrictions in many countries have been lifted, customer traffic is still really low. But I hope ‘this too shall pass‘.
Moody’s, for example, predicts the demand for soft drinks should recover by 2021. The agency rates the company as A3. This is investment grade but not premium. The thing is that Diageo has a reasonably high debt level, given it likes raising dividends. That’s quite a burden for the company’s cash position. There’s one more cause for concern. Most of the company’s cash inflows come from other countries, not the UK. Still, Diageo has to repay most of its debt in pounds. This is a risk. But if the pound stays low, Diageo will be here to gain.
Overall, I’d agree with my colleague Alan Oscroft that Diageo is a buy.
Unilever (LSE:ULVR), a large corporation selling food and personal care goods, is also on Nick Train’s list. The company is a low credit risk. It’s rated as A1, investment grade, by Moody’s. In fact, it’s the third-largest consumer products company in the world. People buy its products regardless of the economic cycle. So, the sales and cash flows are stable and predictable. What’s more, the company is efficient and keeps its costs under control.
Then, Unilever sells its numerous brands all over the globe. That’s great since it suggests the business is well-diversified. At the same time, it means Unilever is exposed to currency fluctuations. This is risky. But multinationals tend to be much less of a risk than local companies because of their large size.
As you can see from the two examples above, both of the companies are big, easy to understand, and well-established. And yet they are not as trendy as the likes of Tesla, Apple, and Amazon. Here at The Motley Fool we offer excellent catalogues where you could find more investment ideas Nick Train would approve of.
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Anna Sokolidou has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon, Apple, and Tesla. The Motley Fool UK has recommended Diageo and Unilever and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.