Single Best Trade: Fund manager at $7 billion firm unveils favorite pick

Investors can choose from thousands of publicly traded securities, so picking stocks worthy of a spot in your portfolio can be challenging. It's even harder knowing if it’s the right time to buy.

To help, professional fund managers are sharing their single best trade idea with TheStreet.

Nobody has a crystal ball, and many things can derail even the best investment thesis. However, professional fund managers have years of experience and resources Main Street investors can only imagine.

For this edition of Single Best Trade, we spoke with Levi Stewart Zurbrugg, senior investment analyst and portfolio manager for Sextant Core Fund. The Sextant Core Fund is managed by Saturna Capital, a West Coast-based money manager with over $7 billion in assets under management.

Zurbrugg, a Chartered Financial Analyst (CFA®), is a long-term-oriented investor. 

His fund invests about 40% of its assets in U.S. stocks, 20% in foreign stocks, and 40% in investment-grade fixed-income securities. It has returned 13% in the past year, 6.8% in the past five years, and 5.5% over the past 10 years, according to Morningstar. It has about $24 million in assets.

Read on to learn why Schneider Electric SE, a France-based global energy company, is Zurbrugg’s single best trade now and what could change his mind.

Single best idea?

Schneider Electric

Why do you like it?

Schneider is the global leader in energy management products and a top player in industrial automation. Simply, its products provide the life blood to the digital transformation and energy transition. Through transformers and switch gears, Schneider products are critical infrastructure in the transmission, distribution, and use of electricity. 

Related: Veteran fund manager reveals 3 favorite global stocks

Its uninterrupted power supply solutions ensure that if the grid goes down, data centers can seamlessly switch from the grid to backup battery or generator power. Supporting this tangible infrastructure, Schneider’s comprehensive software offerings allow customers a host of analytics, ranging from the ability to simulate and fine-tune automation processes to predicting required wind turbine maintenance.

While solar panels and AI chips frequent news headlines, the underlying infrastructure required to connect electricity production and its end uses receives less attention. Regardless, Schneider foresees its total addressable market growing from ~€400 billion in 2023 to more than €500 billion in 2027, a 6% to 7% compound annual growth rate. 

For its part, management expects the company can increase its share, growing sales in the 7% to 10% range annually to 2027. Along with above market sales growth, the company guides to 50 basis points of annual EBITDA margin expansion. All this provides the foundation for a company that could compound earnings in the low-double-digits for the next four to five years.

What could go wrong?

At 23 times the next 12 months’ earnings estimate, Schneider trades at a substantial premium to historical levels. The big risk for Schneider is a global economic slowdown, although the company’s geographic diversification, with similar exposures to the U.S., Europe, and Asia, mitigate risks if downturns are concentrated in one geography. With lingering uncertainty, corporate and government capex budgets are receiving plenty of scrutiny.

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Along with the exogenous macro risks, there’s potential that the “megatrends” Schneider has focused on don’t pan out. AI and the assumed rapid build-out of associated datacenters could take longer than expected. Similarly, the transition to a low-carbon economy could fail to materialize or face delays, drastically slowing the need to expand and harden electric grids. Any one of these risks could challenge the thesis of a steady, well-run earnings compounder.

Disclosure: Several advisory clients of Saturna Capital Corporation currently hold shares of Schneider Electric in their investment portfolios. Our firm's economic interests are intertwined with the performance of these securities, given our clients' investments in them. This creates a conflict of interest.

Single Best Trade does not represent investment advice from TheStreet. All investments should be researched carefully through consultation with an investment professional.