The end of tax year is a key time to top up your stocks and shares ISA because the ISA is a ‘use or lose it’ allowance. You can’t carry any of it forward into the following tax year.
Charlie Huggins, Manager of the Quality Shares Portfolio at Wealth Club, shares his views on three stocks he is holding in his portfolio.
“Most companies are, by definition, mediocre. Some are good. Fewer still are great. And a tiny minority are truly exceptional. These are the ones I want to own.
I’m looking to invest in durable, adaptable and – above all – resilient businesses. Those selling critical goods and services, with high levels of recurring income from loyal customers. I believe the three companies below, owned in the Quality Shares Portfolio, pass these tests with flying colours.
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RELX plc (LSE: REL)
Its name may not set the pulses racing, but you’d be hard pushed to find a higher-quality UK-listed business than RELX.
RELX is one of the world’s leading data experts. Its data, tools and analytics help insurers price risks, governments combat fraud and banks comply with anti-money laundering regulations. These aren’t the kind of things you stop doing in an economic downturn. Added to RELX’s long-term contracts and high levels of recurring revenue, it lends great predictability and resilience.
RELX also benefits from an excellent competitive position. Not only is the quality of its data superb, but its solutions are deeply embedded in customer workflows, leading to high switching costs. Combine this with RELX’s brand strength, customer relationships, reputation and global scale; I wouldn’t want to compete with it.
Competitive advantages like these can often breed complacency, but RELX has not rested on its laurels. Over the last 15 years, the group has invested heavily in innovation, launching increasingly sophisticated data analytics and tools. These investments are paying off. In 2023, RELX grew underlying revenue by 8% – twice as fast as a decade earlier.
With the evolution towards faster-growing analytics continuing, I’m confident RELX can sustain its growth momentum.
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Roper Technologies Inc (NASDAQ: ROP)
Once an industrial giant – selling anything from pumps to stoves and garden equipment– Roper has undergone a significant transformation in recent years. Slower-growing, more economically-sensitive industrial businesses have been sold with proceeds redeployed into acquisitions. Today, Roper is a conglomerate that owns 27 high-quality software and technology businesses.
On the surface, these companies are quite different. One provides billing software for legal firms, another sells single-use bronchoscopes into hospitals. But they all share similar characteristics that should make them extremely resilient.
All Roper’s businesses occupy market-leading positions within a niche, helping keep a lid on competition. The software and technology are critical and deeply embedded in customer operations, making switching difficult and expensive. In addition, a large portion of Roper’s sales are recurring and derived from defensive end-markets.
This business model is wed to an entrepreneurial culture that eschews politics and embraces candour. Roper’s companies are kept independent and given considerable autonomy – the leaders are trusted to make decisions and, crucially, held accountable for the outcome.
The results speak for themselves. Roper is enjoying higher margins and stronger growth than at any time in its history. I believe there is more to come.
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Diploma plc (LSE: DPLM)
Many industrial businesses have struggled in a weakening economic environment. Diploma is an exception, because it is no ordinary industrial distributor.
Diploma supplies critical products, funded from customers’ operating rather than capital budgets. Whether its low-voltage cables going into data centres, seals going into construction equipment, or instruments used for life-saving surgeries, the common thread is that Diploma’s customers can’t function without them.
Diploma is much more than just a product supplier, however. Its businesses provide deep technical support, next-day delivery and customised solutions. This value-add service offering makes it a key long-term partner to its customers and translates to excellent pricing power, margins and cash flow.
Diploma has shrewdly redeployed this cash into acquisitions, to fortify existing niches, and gain a foothold in exciting new markets, like industrial automation. The success of this acquisition strategy is evidenced by Diploma’s very high returns on capital employed of around 20%.
I think this strategy is only just getting going. With plenty of white space left on the map, and proven acquisition credentials, Diploma looks well placed to grow for many years to come.”
