Lewis Grant, Senior Portfolio Manager, Global Equities, at Hermes Investment Management, highlights the technology companies hiding behind the glitz and glamour of consumer-facing stocks.
While the New Year kicked off in the UK with grey skies and drizzle in the air, in Las Vegas the glitz and glamour of the CES technology show rolled into town. Amongst the razzmatazz of big budget, ground breaking VR products it is easy for investors to become distracted, however, we look beyond the sequins to discover the hidden technologies behind the futuristic gadgets we see at these shows.
Cognex is an American provider of vision systems, sensors and industrial ID readers which combine hardware and software to allow machines to interpret the world. With double-digit revenue growth expected and gross margins of almost 80%, Cognex is a high-quality, high-growth company which justifies its premium valuation.We have been invested in Cognex since 2015 and believe that the company is still in the early stages of its life cycle with a leading position in a secular growth industry. The company has been expanding through recent strategic M&A deals and in a highly fragmented market many acquisition opportunities remain.
Cognex’s products are crucial in manufacturing automation and will be in high demand as businesses seek to improve efficiency. Over the coming years we believe there will be opportunities for further expansion within the consumer smartphone manufacturing process as well as automation solutions for e-Commerce retailers such as Amazon and Alibaba.
Lam is a supplier of wafer fabrication equipment and services to the global semiconductor industry. The development of 3D NAND is allowing its customers to create smaller, faster, more powerful devices. We have had high confidence in the business and its product line for a number of years, having held the name since 2010, and we expect it to maintain its leadership position.
For many years the semiconductor market has been driven by demand for smartphones, and some would argue that demand for memory is at a cyclical peak – this may explain Lam’s depressed valuation relative to peers. However new technologies such as the Internet of Things, intelligent driving and Virtual Reality are creating new long term opportunities, diversifying Lam’s target market. We view the company as a high-growth company with a very attractive valuation.