ISAs protect against capital gains tax and
income tax, so when you’re considering which of your stocks to hold in your ISA it makes
sense to select ones that either have a very high yield or a potential to generate a large
profit. I’m going to talk about three buy and hold stocks which we expect to outperform
over the next decade. The first is Xylem (XYL), which is a leading
water technology company, producing filters and pumps, and also tools for analysing water
supplies. The world has an expanding population and a finite supply of water, and so we have
an increasing need for technologies that can help us make the most of what we have. In
the West there is a need to reduce wastage from leaking water pipes, with the US losing
over 13% of its water supply and the UK almost a quarter. In emerging markets there is an
ongoing need to clean up water supplies. Xylem is a company that can help to solve these
problems. The next stock is Tencent (00700), which is
listed in Hong Kong and is one of our preferred Chinese companies. The Chinese stock market
fell over 30% last year due to fears of the trade war between the US and China, and Tencent
came down with it. This year there appears to be some progress in the negotiations between
the US and China, and Chinese stocks are recovering. This is arguably a good time to buy into China’s
leading internet company. Tencent is a major player in online payments, it’s the biggest
gaming company in the world, and its messaging platform has over 1 billion users. The Chinese
economy continues to grow at over 6% per year and Tencent is a company that is benefitting.
The final stock is Abbott Laboratories (ABT), which in our view is exposed to some of the
most attractive areas of the healthcare sector: diagnostics, nutrition, and medical devices.
The healthcare sector is increasingly focusing on prevention rather than cure. If a doctor
can diagnose an issue early and help a patient to manage it with the right nutrition and
perhaps a monitoring device, that patient is less likely to need lots of expensive drugs
and less likely to end up in hospital which is incredibly expensive. Diabetes is a great
example – if a patient has a device that helps them to monitor their own insulin they’ll
be much better able to manage their condition. We believe this is the direction healthcare
is moving in and Abbott is very well placed.