After earnings fell by more than 50 per cent among SMIDs in 2020, and new COVID-19 variants continue to exert volatility, Bell Asset Management has revealed the importance of investing in companies that are set up to handle any external disruptions.
As such, the firm has revealed a list of SMIDs that were able to take advantage of the COVID-19 environment by deploying their capital effectively.
Bell’s top pick is PoolCorp, a wholesale distributor of swimming pool supplies, equipment, and related products.
PoolCorp benefited from consumers’ spending more time at home and in their pools, boosting maintenance revenue, which accounted for 60 per cent of their total revenue.
An increase in construction activity contributed a further 15 per cent to revenue, while refurb/remodelling funds added another great chunk of 25 per cent.
A strong backlog, with favourable end-market conditions, gives Bell confidence that PoolCorp’s solid growth will continue.
Next up was Techtronic Industries, a cordless power tool provider with significant market share in consumer and commercial markets. Brands owned include Hoover, AEG, Ryobi and Milwaukee.
The firm saw huge benefits from people working from home throughout the pandemic, further building on ongoing growth after seven consecutive years of upwards of 20 per cent growth in the Milwaukee brand.
Bell believes that as the commercial market recovers, a robust growth trajectory for the stock will be maintained.
Thule came third on Bell’s list. A global leader in bicycle racks, roof boxes and cargo carriers, the brand benefited from the COVID-induced staycations and wider growth in biking, and used this growth opportunity to expand into the related outdoor leisure markets.
Bell believes that not only are staycations here to stay, but supply chain constraints in bikes and RV-related categories will boost the brand’s growth potential.
The fourth stock picked by Bell is Tractor Supply, the largest retail farm and ranch store chain in the US.
Not only did the business increase its customer base by 9 million through 2020, but the customers gained have also proven to be affluence. The company’s US customer base has a higher average income than the national average, providing more disposable income.
As Tractor Supply has little competition, alongside a proven management team with a track record of execution, Bell expects margins to continue growing.
Fortune Brands Home & Security (FBHS) occupied fifth place. FBHS offers a range of home improvement solutions such as decking and plumbing solutions.
Throughout the pandemic, FBHS benefited from consumers choosing home improvement and DIY while they could not travel.
Despite travel returning, Bell believes strong housing recovery will continue in the US over the next few years. This, coupled with the upside from a successful capital deployment, means the company can look forward to further strong earnings.
Last on the list is Yeti, a designer, marketer and distributor of outdoor and recreational products, including drinkware, coolers, bags and apparel.
The firm was also boosted by US consumers’ spending more on outdoor living, resulting in growth of online sales by 49 per cent in the financial year 2020.
Bell expects international markets to prove pivotal to Yeti’s continued growth. In Q1 international sales grew by more than 100 per cent year-on-year, while remaining less than 10 per cent of the company’s total sales.
Looking ahead
While predicting more disruptions ahead as COVID-19 continues to impact world economies, Bell advised keeping a close eye on high-quality global SMID companies that could emerge even stronger in a post-COVID world.
