Core Control
In this edition of the Smart Investor newsletter, we spotlight a critical industrial platform enabling the systems behind energy, power, and infrastructure. But first, let’s review the latest Smart Portfolio developments.
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Portfolio News and Updates
❖❖ Amazon’s (AMZN) businesses produced a batch of positive news, along with some eye-catching headlines, over the past few days. The first announcement came out of NVIDIA’s (NVDA) GTC conference, where the two tech leaders revealed expanded collaboration. Amazon’s cloud division AWS will purchase over one million NVIDIA GPUs, including Blackwell and Rubin GPU architectures, along with networking and inference hardware, through 2027.
❖ Amazon is doubling down on AI infrastructure, and AWS CEO Andy Jassy is extremely optimistic about its prospects. The company’s 2026 capex of $200 billion is almost entirely intended for AWS’s AI buildout – a front-loaded spending to strengthen its cloud leadership, despite the costs such as near-term margin compression and delayed monetization.
AMZN’s cloud division has been driving overall profit growth over the past few years, and despite its leading position, its revenue expansion has recently moderated from the hyper-growth of the past, sparking investor concern. These worries can arguably be put to rest now, according to Jassy. AWS CEO reportedly said at an internal meeting last week that he believes that AWS could generate $600 billion in annual revenue over the next 10 years – double the run rate he had forecast before the AI revolution. At $600 billion, AWS would approach the scale of Amazon’s entire $717 billion enterprise today.
AWS’s dominance in cloud helped it gain an instant advantage through leveraging that position and presenting AWS as an “AI marketplace,” resulting in surging demand. The heavy capex – part of which will flow into NVDA’s coffers – is necessary to convert that demand into another step up in earnings power. Just like other hyperscalers, AWS remains capacity-constrained, and as Jassy put it on the latest earnings call, it is “monetizing capacity as fast as AWS can install it.”
❖ Amazon’s cloud ambitions just received a stamp of approval from TD Cowen, which maintained its Buy rating with a price target of $300, implying a potential upside of more than 40% from current levels. At the same time, the firm raised its revenue estimates for AWS through 2031, citing faster-than-expected AI-related growth. TD Cowen calls for AWS revenue to expand 28% this year, and post growth in the low 30% range in the next several years. The analysts said that the Street growth consensus underestimates AWS’s tiered gen AI stack that should drive much faster growth acceleration than what is currently priced in the stock.
❖ The cloud and retail giant has acquired a Swiss startup, RIVR, developing AI-controlled wheeled robots, which Amazon reportedly plans to use for “last-mile” delivery – i.e., ferrying packages from its warehouses to the customers’ doorsteps – to improve safety and efficiency. This deal appears to be another step in AMZN’s decade-long push for automation at all levels of its ecommerce business, with the layer of physical AI adding to that in the recent couple of years. Up to now, the main effort has been concentrated on automating warehouse operations through its specialized unit, Amazon Robotics. Last October, the company revealed that since the unit’s opening in 2012, it had deployed over one million warehouse robots.
❖ In other news, Amazon has scored its first major theatrical hit as MGM’s “Project Hail Mary” generated worldwide ticket sales of more than $140 million in its first weekend in AMC Theatres – with Imax reporting an additional $28 million in global ticket sales – marking the strongest debut for a non-franchise Hollywood film since 2023. Amazon acquired MGM Studios in 2022, and now releases around 15 films annually in theaters, combining box-office revenue with streaming value for Prime Video.
❖ According to the media, Amazon is planning to enter the smartphone business over a decade after its initial foray, the Fire Phone, failed to gain traction. Now, the tech giant is working on an AI-driven smartphone project codenamed “Transformer,” positioned as a personalized mobile device that can integrate with the Alexa voice assistant. If successful, this project could tie together AMZN’s e-commerce, Prime Video, and Prime Music offerings in a single, integrated, AI-enhanced experience, creating a wide ecosystem on top of the existing businesses, enhancing the company’s monetization opportunities across retail, advertising, and subscriptions.
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❖❖ Last year’s DeepSeek frenzy that temporarily wiped out $1 trillion from major U.S. tech indices evaporated fast, but served as another strong reminder that China is “all in” the AI race. However, recent news about technological advances emanating from the Asian giant is met with far more pronounced skepticism than DeepSeek claims, which were initially taken practically at face value.
In February, China’s TV showed humanoid robots sing, dance, and jump, dazzling audiences and leading to multiple headlines about the “Chinese dominance in physical AI.” However, last week, the CEO of Taiwan Semiconductor Manufacturing Co., aka TSMC (TSM), put a full stop to these concerns, undercutting the hype.
TSMC produces over 70% of all semiconductors globally, and is a de facto monopoly in AI chips with about 95% market share. As such, the company’s CEO, C.C. Wei, is arguably one of the best experts on what he called “AI brains” of the robots. C.C. Wei stated that while Chinese humanoid robots are “fun” and “showy,” they are essentially useless without the advanced chips – designed by NVIDIA and AMD and manufactured by TSMC – that provide the computing power, sensors, and intelligence for useful, reliable robotics.
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❖❖ CrowdStrike (CRWD) announced major updates to its Falcon Next-Gen SIEM (a modern, AI-powered Security Information and Event Management system) to help organizations upgrade from old, expensive legacy SIEMs more easily.
The company revealed deep and enhanced integration with Microsoft’s (MSFT) endpoint security system, Defender. Falcon Next-Gen SIEM can now directly pull in and analyze Microsoft Defender’s telemetry in real time, enabling MSFT’s endpoint customers to modernize security operations without deploying additional sensors. Moreover, the updated Falcon SIEM includes new features to speed up migration and cut costs, including Native Falcon Onum – real-time data pipelines that speed up data processing and incident response, while reducing storage costs.
CRWD’s Next-Gen SIEM is already growing at a breakneck speed of about 75% year-over-year, and now the company has made another step in supporting adoption by making it especially easy for Microsoft-heavy organizations to modernize their SOCs toward an AI-native future with less friction, lower costs, and better performance.
At the same time, CrowdStrike unveiled another Falcon expansion, extending the platform’s AI-native capabilities to secure the exploding use of AI agents – treating the endpoint as the epicenter for visibility, discovery, governance, and real-time threat detection against AI-related risks in various environments.
Moreover, CRWD’s Falcon for XIoT – its module for securing the Extended Internet of Things, such as industrial control systems and critical infrastructure – has achieved FedRAMP High authorization, the U.S. government’s strictest cloud security certification level. This extends the already FedRAMP High-authorized Falcon platform (operating on AWS GovCloud) to protect mission-critical operational and connected infrastructure in federal agencies.
These updates further strengthen CrowdStrike’s leverage, positioning Falcon as the unified, AI-powered, and compliant for regulated environments “operating system” for cybersecurity. They arrive in parallel with a batch of news that underscored CRWD’s widening ecosystem – including a deal with Perplexity AI to integrate the Falcon platform with the Comet Enterprise AI browser, and an expanded collaboration with NVIDIA (NVDA) to enhance its Agentic Managed Detection and Response (MDR) capabilities.
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❖❖ Keysight Technologies (KEYS) is evolving beyond its traditional roots in test and measurement hardware, with a series of March 2026 product launches that position the company as a key enabler in AI data centers and cybersecurity compliance.
The company introduced AresONE 1600GE, a scalable 1.6T Ethernet platform that emulates realistic AI workloads to validate next-generation AI fabrics at 224G lane speeds. It unifies physical-layer testing, traffic emulation, and protocol validation, helping hyperscalers and chip makers reduce deployment risks, optimize performance, and benchmark AI cluster efficiency before production rollout.
Building on this, KEYS updated its testing systems, INPT-1600GE and AresONE 1600GE, supporting their ability to check a wider variety of connection types used at 224G lane speeds – including passive copper DACs, ACCs, low-power optics, and linear receive optics. These enhancements address critical AI/HPC challenges like power efficiency, signal integrity, error-free reliability, and reduced downtime in dense, high-bandwidth networks.
Beyond these systems, Keysight also launched a software tool that streamlines the generation, management, vulnerability scanning, and secure sharing of Software Bill of Materials (SBOMs). The tool, dubbed SBOM Manager, helps organizations comply with global regulations on cybersecurity and compliance by improving software transparency and supply-chain security across product lifecycles.
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❖❖ Barclays has hiked Regal Rexnord’s (RRX) price target from $237 to $245 – implying a potential upside of more than 32% – while reconfirming its Buy rating on the stock. The firm highlighted RRX’s organic investments, such as R&D, capacity expansions, and efficiency initiatives, along with portfolio changes, including strategic shifts and focus on higher-growth areas like data centers, automation, and energy efficiency. These moves are seen as positioning Regal Rexnord strongly for accelerating sales growth through the rest of the decade. Barclays had previously hiked the target to $237 from $165 post-earnings, citing robust order growth and increasing materiality of data center exposure.
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❖❖ nVent Electric’s (NVT) Investor Day drew praise and price-target upgrades from several analysts, as management unveiled ambitious three-year goals, anchored by the company’s portfolio transformation and accelerating exposure to data centers and power utilities. Key targets include: organic sales CAGR of 10-13% with inorganic sales adding at least 3%; adjusted EPS CAGR of 17-20%; free cash flow conversion at about 95%; and adjusted operating margin expansion to around 22%. Management noted that Q1 performance is already trending ahead of expectations.
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❖❖ Jabil (JBL) delivered a standout fiscal Q2 2026, beating expectations across the board and raising full-year guidance, with AI-driven infrastructure demand clearly taking center stage.
Revenue climbed 23% year-over-year to $8.28 billion, while core EPS jumped by over 38% to $2.69, both well ahead of estimates. Core operating income reached $436 million, as improved business mix and disciplined execution translated into margin expansion.
The engine behind the quarter was the Intelligent Infrastructure segment, where revenue surged 52% year-over-year, driven by strong demand across cloud and data center infrastructure, networking, and capital equipment. AI-related activity continues to scale rapidly, with Jabil now targeting roughly $13.1 billion in AI-driven revenue this year, implying ~46% growth and pointing to accelerating deployment across hyperscale and enterprise platforms.
Additionally, the Regulated Industries segment grew 10% with improving trends in automotive and renewables end markets. In parallel, revenue in the Connected Living & Digital Commerce unit declined 8% as the company continues to exit lower-margin programs and shift toward higher-value automation and robotics.
Looking ahead, Jabil now expects fiscal 2026 revenue of about $34 billion and core EPS of $12.25, implying year-over-year growth of 14% and 26%, respectively. The raised guidance reflects stronger demand and improved visibility into the second half of the fiscal year, despite ongoing macroeconomic and component cost uncertainty.
Analysts responded decisively, raising price targets across the board while reiterating Buy ratings, pointing to sustained AI demand, operating leverage, and increasing confidence in execution. The consensus is increasingly positive, as JBL positions itself more firmly at the center of the AI infrastructure buildout, with growth now tied to hyperscale deployments, expanding customer programs, and a pipeline that continues to scale.
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Portfolio Stocks Under Review
❖ We are keeping Oracle (ORCL) under review despite its strong fiscal Q3 2026 results and improved outlook. The report provided the confirmation we were looking for – ORCL is already monetizing AI infrastructure demand, and its massive backlog is starting to convert into real revenue. Just as important, the company clarified that much of this expansion is being funded through customer-backed infrastructure models, significantly reducing its own capital burden.
The results reinforce that Oracle’s cloud transformation is accelerating, driven primarily by AI-related demand. OCI remains the key engine, supported by structurally strong demand that continues to exceed available supply, while the AI infrastructure business is already profitable with additional upside from higher-margin adjacent services and database offerings.
Recent developments further strengthen this trajectory. Oracle continues to deepen its AI stack, launching agentic AI capabilities across both its applications and database layers. New Fusion Agentic Applications embed AI agents directly into enterprise workflows, enabling systems that can reason, decide, and act in real time within core business processes. At the same time, enhancements to Oracle AI Database – including vector capabilities, unified data architecture, and built-in security controls – position the company to capture more value from enterprise AI adoption by tightly integrating data, models, and execution within a single platform.
ORCL is also expanding its strategic partnership with NVIDIA (NVDA), introducing next-generation OCI infrastructure powered by advanced GPU systems and accelerating capabilities such as vector processing and large-scale AI training. This collaboration, alongside Oracle’s significant investment in AI data center capacity, reinforces its positioning as a full-stack provider of AI infrastructure, spanning compute, data, and applications.
While margins are currently pressured by the pace of data center construction, this appears to be a timing issue rather than a structural concern. Much of the capacity under development is already contracted at attractive terms, suggesting improved returns as projects come online. The latest results also ease prior concerns around debt and negative free cash flow, as the customer-funded model shifts a meaningful portion of investment away from Oracle’s balance sheet.
Street sentiment is also turning more constructive. Bank of America reinstated coverage with a Buy rating and a $200 price target, highlighting Oracle’s significant upside potential tied to AI infrastructure demand, while also emphasizing the need for execution in scaling capacity and converting backlog into revenue.
Overall, our conviction in Oracle as a core AI infrastructure player has strengthened, with clear evidence that monetization is already underway and that the company is rapidly expanding its role across the AI value chain. However, we prefer to remain patient before making a final decision, allowing sentiment around the stock to stabilize after a prolonged period of skepticism. That caution is reinforced by the current market environment – ongoing geopolitical tensions are driving macro uncertainty, pulling sentiment in multiple directions, and obscuring the underlying equity picture.
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Portfolio Earnings and Dividend Calendar
❖ The Q4 2025 earnings season is over, and there are no releases scheduled for the Smart Portfolio holdings until the Q1 2026 reporting begins with the large financials in mid-April.
❖ The ex-dividend date for Regal Rexnord (RRX) is March 31.
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New Buy: Flowserve (FLS)
Flowserve Corporation is a global provider of fluid motion and control solutions, operating at the core of how critical liquids and gases move through industrial systems. Its products – including pumps, valves, seals, and automation systems – are embedded across essential infrastructure such as energy, water, chemicals, and general industrial processes, where reliability and operational continuity are critical. The company’s portfolio supports the safe and efficient handling of some of the world’s most demanding applications, from refining and power generation to water management and carbon reduction initiatives. As industries modernize and place greater emphasis on efficiency, resilience, and lifecycle performance, Flowserve occupies a central role – supplying the equipment and expertise that keep complex systems running and increasingly, optimizing how they perform.
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Flow State Shift
Flowserve’s roots trace back to 1912, when it was built through the consolidation of industrial pump, valve, and seal manufacturers that supported the rise of modern energy, water, and chemical infrastructure. For decades, the company operated as a broad-based supplier of critical flow control equipment – a business defined by engineering depth, global service networks, and long-cycle industrial demand. What defines Flowserve today, however, is a more recent and deliberate repositioning toward higher-value applications and structurally growing end markets.
That shift began to take clearer shape over the past five years. Management moved to simplify the portfolio and sharpen execution, focusing less on volume and more on profitability, aftermarket services, and system-level solutions. A key enabler of this reset has been the rollout of Flowserve’s 80/20 operating framework, which prioritizes higher-value customers and applications while streamlining complexity across the business. Operational initiatives streamlined manufacturing and improved delivery performance, while pricing discipline and backlog management became more central to the model – particularly as supply chains tightened and customers prioritized reliability.
At the same time, FLS began aligning itself with long-duration secular themes. The company formalized its “3D” strategy – Diversification, Decarbonization, and Digitization – as a framework for capital allocation and growth. This translated into increased exposure to energy transition markets such as carbon capture, hydrogen, and nuclear power, alongside expansion into structurally resilient areas like water infrastructure, while gradually reducing reliance on more volatile or commoditized segments of traditional oil and gas. This strategic shift was paired with active portfolio management, including the 2025 divestiture of its asbestos-related liabilities business, which removed a long-standing legal and financial overhang.
Acquisitions have complemented this repositioning. The 2024 acquisition of MOGAS expanded Flowserve’s reach into mining and minerals processing, further diversifying its end-market exposure, while the buyout of Trillium Flow Technologies’ Valves Division, announced in February 2026, is set to deepen FLS’s presence in conventional and emerging power markets, particularly nuclear. The addition of Trillium’s installed base also strengthens Flowserve’s ability to generate recurring, higher-margin aftermarket demand. Earlier investments also focused on enhancing lifecycle service offerings and digital monitoring capabilities, helping FLS move closer to customers’ operations instead of remaining just a standalone equipment supplier.
Technology has become a more visible layer of the strategy. Over the past several years, Flowserve has expanded its use of digital tools, automation, and AI-driven analytics across both its products and internal processes – improving predictive maintenance, asset performance, and operational efficiency. These capabilities are increasingly relevant in areas such as liquid-cooled data center infrastructure, where Flowserve’s heritage in high-reliability fluid management is being repurposed to support the thermal demands of next-generation AI compute.
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Critical Mass
Flowserve operates as a critical enabler of industrial flow – a company positioned deep inside the systems that move energy, water, and chemicals across global infrastructure. Its pumps, valves, seals, and control systems are not optional components, but embedded assets within facilities where uptime, safety, and efficiency are essential. Once installed, these systems tend to remain in place for decades, creating a durable footprint that supports both initial equipment sales and a long tail of service, repair, and replacement demand.
The business is organized across two core divisions – Pumps and Flow Control – which together span a wide range of end markets including energy, power generation, chemicals, water, and general industrials. While exact end-market splits vary, Flowserve’s exposure is deliberately diversified, with growing emphasis on power and infrastructure over time. The Pumps division represents the larger share of activity and has been the primary driver of recent growth, while Flow Control has undergone more active repositioning, improving margins even as order intake remains uneven.
What defines FLS today is not just what it sells, but how it captures value over time. Roughly $2.6 billion in annual aftermarket bookings reflects a model increasingly anchored in recurring revenue – supported by a global installed base serviced through its Quick Response Center network. These services carry higher margins and are less sensitive to new project cycles, giving the company a more resilient earnings profile even when original equipment demand fluctuates.
Growth is increasingly tied to where capital is being deployed globally. Power generation – particularly nuclear – is emerging as a central pillar, with approximately $400 million in nuclear awards in 2025 and a pipeline supported by energy security and electrification trends. The acquisition of Trillium’s valves business deepens this position, expanding FLS’s role within nuclear systems, increasing content per reactor, and adding more than 200,000 installed units that feed future aftermarket demand. At the same time, the MOGAS acquisition broadened exposure to mining and severe-service1 applications, reinforcing diversification beyond traditional oil and gas.
Alongside these shifts, Flowserve is building a digital layer through its RedRaven platform – a cloud-based industrial IoT solution that monitors equipment performance and predicts maintenance needs – enabling predictive maintenance and remote monitoring. This capability is gaining relevance as industrial operators face labor constraints and increasing system complexity, while also aligning the company with emerging demand in AI-driven data center infrastructure and advanced cooling systems.
From here, the near-term picture is more mixed than the structural story. Higher oil prices can support maintenance activity and aftermarket demand in energy markets, but they also raise inflation risk across materials, freight, and labor. At the same time, a weaker economy and fading expectations for Fed cuts can delay customer investment decisions, especially for larger original-equipment projects, while higher financing costs add pressure around acquisition funding and long-cycle project timing. Those risks matter most in weaker areas, such as chemicals, and in the more uneven Flow Control order environment.
However, Flowserve is not entering this phase as the same company it was a few years ago. Its larger aftermarket base, broader end-market mix, stronger nuclear and power exposure, and improving digital service layer give it more resilience than a traditional capital-goods supplier. So the short-term risk is not that the thesis breaks, but that timing gets pushed around by the macro backdrop. The longer-term upside still rests on the same pillars – power infrastructure, nuclear buildout, installed-base monetization, and disciplined execution – but in 2026, execution and margin control will matter at least as much as end-market demand.
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1 – Severe-service applications refer to industrial environments involving extreme pressure, temperature, or corrosive and abrasive materials, where equipment reliability and durability are critical.
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Valves Wide Open
Flowserve’s recent financial trajectory reflects a company that has shifted from cyclical variability toward more controlled, execution-led growth – with margins, not volumes, doing most of the work.
The inflection was clear in the fourth quarter of 2025. Revenue reached $1.22 billion, up 3.5% year-over-year, despite only modest organic growth of roughly 1% and a ~$60 million miss versus expectations due to project timing. What stood out instead was profitability. Adjusted operating margin expanded 420 basis points year-over-year to 16.8%, surpassing the company’s prior 2027 target range two years ahead of schedule. Adjusted EPS came in at $1.11, up 59% year-over-year and marking another earnings beat, extending a multi-quarter pattern of consistent outperformance.
That momentum reflects a broader trend across 2025. Full-year sales increased 3.8% to roughly $4.73 billion, while adjusted EPS rose 38% to $3.64. Total bookings reached $4.71 billion, with OEM bookings at $2.07 billion and aftermarket orders at roughly $2.65 billion, underscoring steady demand even as the company shifted toward higher-quality, margin-driven growth. Adjusted operating margin expanded to 14.8% from 11.8% the prior year, capping 12 consecutive quarters of margin improvement. The driver has been structural – a combination of a mix shift toward higher-margin aftermarket work, disciplined pricing, and continued rollout of the 80/20 operating model under the Flowserve Business System.
Segment dynamics reinforce that shift. The Pumps division has become the primary engine, with bookings up 8% in Q4 and aftermarket demand rising 12%, supporting both revenue and margin expansion toward the ~20% level. The Flow Control segment remains more uneven – bookings declined about 10% year-over-year, with a book-to-bill of 0.84x, reflecting project delays and softer demand, even as margins improved to roughly 19.7% in Q4. The divergence is structural: Pumps is increasingly service-led, while Flow Control retains greater exposure to project timing and macro sensitivity.
Cash generation has followed suit. Operating cash flow reached approximately $506 million in 2025, up 19% year-over-year, with free cash flow conversion near 97%, and over 100% in Q4, excluding one-time items. Net leverage remains low at roughly 1.0x, giving the company flexibility to fund acquisitions such as Trillium while continuing shareholder returns of about $365 million during the year.
Looking ahead, management is guiding for measured but quality growth. For 2026, Flowserve expects revenue growth of 5-7%, with organic growth of 1-3%, and adjusted EPS of $4.00-4.20 – roughly 13% growth at the midpoint and modestly above consensus. Operating margin is expected to expand by another ~100 basis points, continuing a multi-year trajectory that targets ~20% by 2030, implying sustained annual improvement of around 100 basis points.
That outlook comes with near-term moving parts, but most are tied to the same strategic shift driving the company forward. Backlog conversion is expected at ~75%, lower than prior years due to a heavier mix of long-cycle nuclear projects – which pushes revenue and earnings toward the second half, with Q1 typically the weakest quarter. What appears as timing pressure is in part a function of larger, higher-value projects entering the mix. Original equipment demand remains selective and organic growth modest, but this is increasingly offset by stronger aftermarket activity and margin expansion.
Execution remains central – particularly around cost control, pricing, and integration – yet recent results suggest these levers are working. Inflation in materials and labor, tariff exposure, and higher interest costs – including roughly $80 million in expected net interest expense – add pressure, but the company is approaching this phase with a more disciplined cost structure, pricing power, and a higher-quality revenue base than in prior cycles. FLS’s growth may not be linear, but profitability is becoming more predictable – and that shift, more than any single quarter, defines the current financial profile.
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Controlled Criticality
Flowserve operates alongside a focused group of mid-cap U.S. industrial companies centered on flow control, process infrastructure, and engineered systems embedded in critical operations. ITT provides the closest operating comparison, with a similar mix of pumps, valves, and aftermarket services across energy, chemical, and industrial end markets. Crane aligns closely in both scale and product focus, particularly in valves and power-related applications, including growing nuclear exposure. IDEX represents a more precision-oriented model, with a portfolio tilted toward higher-spec, mission-critical fluidics across industrial and life sciences applications. Pentair adds a more infrastructure-driven angle, with greater emphasis on water systems and installed-base recurring demand. Together, these peers frame Flowserve within a spectrum of industrial models that share common technical foundations but differ in end-market mix and strategic emphasis.
Stocks in this tight group have displayed mostly positive but varying performances over the past year, with FLS clearly ahead of peers with a gain of over 40%. The outperformance reflects a combination of improving end-market exposure and internal execution, as Flowserve moved from a discounted, cyclical profile toward a higher-quality, margin-driven story tied to power, nuclear, and infrastructure demand. While peers like ITT have also benefited from strong execution, they entered the period with more established valuation profiles, limiting the magnitude of re-rating. Others in the group have faced softer conditions in shorter-cycle or consumer-linked markets, or simply lacked a clear catalyst to drive upside. In contrast, FLS has delivered both – stronger earnings momentum and a more compelling narrative shift – allowing it to capture a disproportionate share of investor interest within the sector. That helps explain why, even after a strong rally, analysts still see nearly 30% upside for the Strong Buy-rated stock.
Some of the drivers for this optimism also lie in Flowserve’s valuations, which are moderate compared to both the Industrials sector medians and to its peers. Despite the best-in-class stock performance, FLS metrics – such as trailing and forward P/E and EV/EBITDA ratios, as well as its Price/Cash Flow – are just above the underperforming Pentair, and well below other peers. Moreover, Flowserve’s sales-based metrics are the lowest among peers, signaling that the market is still assigning a discount to its revenue base, despite improving mix and profitability. On a growth-adjusted basis, FLS’s forward PEG of roughly 1.6x – also the lowest among peers – suggests that the stock remains reasonably valued relative to its expected earnings trajectory, with room for further re-rating if execution continues.
Beyond the potential share-price appreciation, Flowserve maintains a disciplined, balanced, and execution-focused capital allocation framework, prioritizing a mix of internal growth, targeted M&A for strategic positioning, and consistent shareholder returns, all while maintaining a strong, low-leverage balance sheet.
FLS maintains a balanced approach, returning roughly 70-80% of free cash flow to shareholders through both dividends and buybacks. The company’s dividend record stretches back nearly two decades, with occasional step-ups like the 5% hike delivered in Q4 signaling confidence in cash generation while keeping the payout conservative. The company’s dividend yield is roughly in line with the Industrials sector average at about 1.2%.
Beyond dividends, FLS runs an active repurchase program, historically authorizing around $1 billion cumulatively, but more recently buying back roughly $250-255 million a year when shares are seen as discounted. Management describes buybacks as “flexible and opportunistic,” with an explicit intent at a minimum to offset equity dilution. In 2025, the company repurchased about $255 million in shares, supported by strong free cash flow conversion. Flowserve exited 2025 with approximately $200 million remaining under its current share repurchase authorization. However, following the Trillium close, buybacks are expected to take a back seat to deleveraging in 2026-2027.
This approach underscores a company that is increasingly managing its growth and returns with discipline, while preserving flexibility as it integrates recent acquisitions and navigates the next phase of its cycle.
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Investing Takeaway
Flowserve is emerging as a more controlled, higher-quality industrial platform, shifting away from pure cycle exposure toward a model defined by execution, mix, and long-duration demand. Its positioning within power, nuclear, and infrastructure markets places it closer to structural growth cycles, while the expanding aftermarket base adds stability and visibility. At the same time, operational discipline is translating into more consistent profitability, reinforcing confidence in the model. The near term may remain uneven as project timing and macro conditions evolve, but the underlying direction is clear. With a stronger foundation, improving earnings quality, and increasing alignment with essential infrastructure, Flowserve is positioning itself as a more resilient compounder, with further upside tied to continued execution and deeper penetration of its core markets.
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New Sell 1: AbbVie (ABBV)
We are exiting our position in AbbVie. This is not a reflection of deteriorating fundamentals. The company continues to execute well, with Skyrizi and Rinvoq driving strong growth and the broader portfolio delivering on its post-Humira transition. The issue is uncertainty – and, in the current environment, that matters more than ever.
Markets are already navigating elevated macro and geopolitical volatility. The ongoing conflict in the Middle East has pushed energy prices higher, increased inflation risk, and added pressure to global supply chains. At the same time, macro data is softening, with a weakening labor market raising concerns about the strength of the broader economy. In this backdrop, investors are becoming more selective, and risk tolerance is declining. The last thing investors need now is more uncertainty.
That is precisely what has emerged for AbbVie. The recent FDA approval of Johnson & Johnson’s Icotyde introduces a new and differentiated competitive threat to Skyrizi, the company’s primary growth engine. An oral, once-daily therapy with “biologic-like” efficacy has the potential to reshape treatment dynamics over time, particularly if it expands into additional indications such as psoriatic arthritis and inflammatory bowel disease. While this does not alter AbbVie’s near-term outlook, it introduces a new layer of unpredictability around the durability of its long-term growth trajectory.
At the same time, the stock has begun to reflect this shift in sentiment. Shares have weakened relative to both the broader market and the healthcare sector, with momentum indicators turning negative and technical support levels coming into focus. When sentiment deteriorates alongside rising fundamental uncertainty, downside risk becomes harder to ignore.
Importantly, we continue to view ABBV as a high-quality company with a strong pipeline, disciplined capital allocation, and meaningful long-term potential. This is not a structural break in the story. However, in an environment already defined by elevated macro risk, adding company-specific uncertainty changes the balance. We prefer to step aside for now, preserve flexibility, and revisit the name once visibility improves and the competitive landscape becomes clearer.
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New Sell 2: Jones Lang Lasalle (JLL)
We are closing our position in Jones Lang LaSalle. The company remains one of the highest-quality operators in global real estate services, with a diversified platform, strong execution, and a balance sheet that provides meaningful flexibility across cycles. Our decision is driven entirely by macro conditions – specifically, the sudden deterioration in visibility after what had been a stable and improving economic backdrop.
Our original thesis – dating to last September – was built on a clear setup: gradually stabilizing inflation, a path toward lower interest rates, and a resulting rebound in commercial real estate transactions. That backdrop supported accelerating capital markets activity, improving leasing trends, and operating leverage across JLL’s platform. Today, that setup is far less straightforward.
The macro picture has shifted meaningfully. Rising energy prices tied to the Iran war are reintroducing inflation risk, while recent labor data points to a softening job market. This creates a difficult policy backdrop, where the Fed is constrained – inflation limits its ability to cut rates, even as economic momentum weakens. For a business like JLL, which is highly sensitive to capital flows and transaction volumes, a “higher-for-longer” rate environment alongside a softening economy creates a challenging setup.
Capital Markets and Leasing – the most cyclical and earnings-sensitive segments – are directly exposed to interest rates and corporate activity. If rate cuts are delayed and hiring slows, the expected recovery in deal flow and leasing demand may stall or push further out. Even if the long-term trajectory remains intact, the timing becomes uncertain.
That uncertainty is key. Real estate is one of the most macro-sensitive sectors, and in periods like this, sentiment can weigh on even the strongest companies. JLL’s recurring revenue streams and financial strength provide resilience, but the stock itself remains vulnerable to shifts in investor expectations around the cycle.
Importantly, our long-term view has not changed. Jones Lang LaSalle is exceptionally well-positioned to benefit from an eventual recovery, supported by its scale, outsourcing platform, and exposure to structural growth areas such as data centers and logistics. This is a timing decision. We are stepping aside while the macro picture remains unclear and will look to re-enter once visibility improves even marginally.
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Smart Investor’s Winners Club
The Winners Club represents stocks from the Smart Investor Portfolio that have risen at least 30% since their purchase dates.
A week of wild moves in stock markets ended with no change in the Winners’ count – although CRWD fell through the threshold again, JBL replaced it. The Club still holds 21 stocks: GE, AVGO, EME, TSM, HWM, ANET, APH, VRT, IBKR, PH, MTZ, ORCL, KEYS, GOOGL, ATI, RTX, BK, ASX, CSCO, STRL, and JBL.
The first runner-up is now MS with a 28.90% gain since purchase. Will it make it to the finish line, or will another stock outrun it?
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