Whether watching television, shopping or driving in the car, today’s consumers want to control exactly when, where and how they receive content, information, goods and services.
These three themes capitalize on this long-term, secular trend:
- High quality content creation and delivery
Out of the 118 million households in the US, 98 million are pay-TV subscribers. Last year, the US pay-TV industry lost 500,000 of these subscribers (a 0.5% decline), setting off concerns about cord-cutting and the demise of the pay-TV system. Based on the secular trend of ‘go-anywhere’ content consumption and delivery, I believe the US media ecosystem is more likely to see an evolution rather than a revolution, benefiting companies with scale, content creation and delivery capabilities, as well as diversified business models.
Comcast is an example of an innovative, well-managed cable operator with upside potential given its scale and industry-leading product suite (X1 video platform, high speed data speed advantage). In addition, I believe Comcast’s NBC Universal assets (broadcast, cable nets, studio, parks and resorts) remain undervalued and in the middle innings of a turnaround.
- Evolving to win in an e-commerce world
The shift to the internet as a retail distribution channel has impacted the profitability and stock prices of many retailers. E-commerce giants like Amazon continue to gain share through continual innovation, increased product selection and low cost express delivery. To remain competitive, traditional brick and mortar retailers need to think creatively about product selection, cost, delivery and value-added content and programs.
Home Depot, the world’s largest home improvement retailer, is a high quality business that has successfully evolved and defended its franchise by building a competitive moat. Home Depot operates in the duopoly $300 billion home improvement market which is split between professionals ($120 billion) and do-it-yourself consumers ($180 billion). Home Depot has fortified itself against ecommerce disruption by focusing on the needs of the ‘pro’ – contractors and other home improvement professionals - that value immediate and local availability of products, a wide selection of brands and the convenience of shopping at a store. Home Depot’s value-added initiatives like ‘Buy Online and Ship to Store’ or ‘Buy Online and Pick-up in Store’ provide customers access to 300,000 items available for pick-up in store compared to 30,000-40,000 typically in-stock at a Home Depot.
- Connected car and mobility
We believe the future of the automotive industry will be defined by the ‘connected car’ – vehicles as an extension of our lives. This trend is further spurred by regulatory mandates, technology integration and insurance incentives. Indeed, the auto cockpit electronics market, currently at $36 billion, is predicted to grow over 7% through 2020.1
As a tier-1 cockpit electronics provider, Visteon’s products include information displays, instrument clusters, audio, heads-up displays, infotainment and telematics. Visteon benefits from the powerful mobility-related themes of connectivity, convergence and consolidation. Visteon’s connectivity allows cars to be constantly connected to the cloud, whether tethered to a smart phone or through a 4G connection. Visteon’s SmartCore technology will allow various stand alone chip sets and devices, including consumer information and entertainment devices to converge into an integrated center screen dash. The highly fragmented auto supplier industry is ripe for consolidation and Visteon’s intellectual property and technology make it an attractive acquisition candidate.
1 Source: Visteon, Strategy Analytics, IHS and Baird as of November 18, 2015.
This blog post is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Loomis, Sayles & Company, L.P. This information is subject to change at any time without notice.