Ollie Smith: Our special week on the outlook for 2022 is in full swing here at Morningstar.co.uk. Here for a very special end-of-year edition of our "3 Stock Picks" series is Killik & Co.'s Associate Investment Director, Rachel Winter.
Rachel, what are the three stocks you have your eye on for next year?
Rachel Winter: Well, the first one is CME Group (CME), which is a leading derivatives exchange provider. It focuses on running exchanges for futures and options, focusing on a wide variety of asset classes, including interest rates, equities and foreign exchange. There are several trends that are really benefiting CME at the moment, one of which is that derivatives trading is becoming a lot more globalised, and that's really opening up the size of the addressable market. The other is that there's a lot more automated trading, and that includes high-frequency trading, and that means that more volumes are going through. But mainly, looking forward, if we do get a rise in interest rates, which is expected to happen very soon, then you would expect to see a big pickup in the trading of interest rate derivatives and that should be good news for CME Group.
OS: Sure. And on stock number two, what can you tell us?
RW: Stock number two is Infineon (IFNNY), which is a German company. It's a leading manufacturer of semiconductors with a particular focus on the automotive industry. And it has a very strong position in what's called power semiconductors, and these are really important for electric vehicles but also in renewable energy and also battery storage systems. And these are all very big growth areas, and we expect them all to do very well for Infineon going forward.
OS: Sure. What's their exposure, if I may ask, to the supply chain issues [experienced by car makers]?
RW: They have suffered from it. But actually you could say that to some extent it is benefiting some of these manufacturers because there's a demand issue really rather than a supply issue. So, what's happening is that prices have been pushed up, and that means that companies like Infineon have been fully booked out for the next few months of the amount of product that they are able to produce. But going forward, we do expect there to be a doubling of the total market size of semiconductors between 2020 and 2030, and that should provide a very good opportunity for companies like Infineon.
OS: Okay, cool. And finally, stock number three, do you think it will make headlines in 2022 or is it more of a stocking filler, so to speak?
RW: So I'd probably say it is a stocking filler. It's a company that we'd be very happy to hold for the longer term. The company is called UnitedHealth Group (UNH), and it's one of the biggest, most diverse healthcare companies in US. There are two main parts to the business. The larger part is a big healthcare insurance business. And then, the other part, which is still worth about 45% of revenue, is a data analysis business called Optum, and Optum is the bit that really interests us because it really analyses all the patients who are going through the insurance side of the business. So, it looks at the issues that they're having, it looks at the treatments they're being prescribed, it looks at how much they cost, and it looks at how effective they are. Optum is able to analyse those pathways, and for future patients, it's able to work out what is going to be the cheapest but also the most effective pathway. That's going to help to bring down costs across the whole of the American healthcare industry, and we think that is something that is really needed going forward.
OS: Okay. Merry Christmas. Rachel, thanks so much. For more on the Morningstar outlook for 2022, check out Morningstar.co.uk or search 2022Outlook online. Until next time, I've been Ollie Smith for Morningstar.
