Diverse Strengths

In this edition of the Smart Investor newsletter, we examine one of the leading industrial conglomerates. But first, let us delve into the latest Portfolio news and updates.


Portfolio Stock Updates

❖ CDW (CDW) reported Q1 2024 revenues and earnings that missed analysts’ estimates. Both revenue and net income decreased compared to the same period of the previous year. The company cited weaker-than-expected IT market conditions and the federal budget stalemate, both of which affected sales in the past quarter. In addition, CDW slightly reduced EPS guidance for 2024, reflecting the slower start to the year.

❖ Flex (FLEX) revealed its results for the fourth quarter and the fiscal year that ended March 31, 2024. In the past quarter, the company’s revenues and earnings-per-share surpassed analysts’ estimates. As for the full-year results, FLEX reported better-than-expected EPS but slightly missed on revenue. The company announced a restructuring plan aimed at enhancing operational efficiency.

❖ Cencora (COR) reported its FQ2 2024 results, surpassing analysts’ EPS estimates but missing on revenue projections. The pharmaceutical wholesaler has raised its adjusted diluted EPS guidance for fiscal 2024 and announced a new share repurchase program authorizing up to $2 billion of its common stock.

❖ Cigna (CI) beat analysts’ estimates on both revenue and EPS in Q1. The healthcare provider hiked its adjusted EPS guidance for 2024 by 15% over its prior projection.

❖ ITT (ITT) reported Q1 revenue and EPS that surpassed analyst estimates and raised its top- and bottom-line guidance for the full year.

❖ Parker Hannifin (PH) revealed its results for the fiscal Q3 2024. Revenues were in line with estimates, despite reaching a record, while EPS strongly surpassed analysts’ expectations. The company increased its top- and bottom-line outlook for fiscal 2024 and announced a 10% dividend hike.

❖ Regeneron (REGN) missed Q1 revenue and EPS estimates. Sales fell slightly over the quarter, mostly due to a decline in sales of Eylea (excluding the high-dose version) in the U.S. However, the stock surged as the quarterly results were overshadowed by news about higher-than-expected sales of Eylea HD and progress on the company’s antibody treatment aimed at preventing muscle loss associated with the usage of the GLP-1 obesity drugs. The biotech firm announced a new share buyback program amounting to $3 billion.

❖ Howmet Aerospace (HWM) strongly surpassed analysts’ revenue and EPS projections in the first quarter. The aerospace and defense company said quarterly revenue has reached a record high and hiked its full-year top- and bottom-line projections. In addition, HWM said it plans to hike its dividend by 40% in the third quarter.

❖ Cboe Global Markets (CBOE) strongly surpassed analysts’ Q1 2024 EPS estimates, while revenues slightly missed despite reaching an all-time high.

❖ Vertex Pharmaceuticals (VRTX) revealed its results for Q1 2024, which included significantly higher than forecast revenues and EPS. The company announced a new acquisition aimed at enhancing its autoimmune disease treatment pipeline.

❖ Jacobs Solutions (J) reported its FQ2 2024 results, with revenue and EPS topping estimates. Management narrowed its fiscal 2024 adjusted EPS guidance, suggesting a 10% increase year-over-year at the midpoint.

❖ Arista Networks (ANET) reported its Q1 2024 results, which easily surpassed analysts’ revenue and EPS estimates. The company lifted its Q2 revenue guidance, citing accelerating demand for its cloud networking solutions. The management announced an additional $1.2 billion share repurchase program.

❖ McKesson (MCK) reported its results for the fiscal fourth quarter and full fiscal year 2024, which ended March 31st. In the quarter, the pharmaceuticals distributor missed both revenue and EPS estimates. Although revenue strongly rose year-on-year, the increase was smaller than anticipated due to the weakness in the company’s U.S. pharmaceutical segment, its largest revenue unit. For the full year, McKesson reported mixed results featuring in-line revenues and a slight miss on EPS. However, the company issued an optimistic guidance for fiscal 2025, projecting EPS growth of 14% to 17%, higher than analysts’ estimates.

❖ Assurant (AIZ) strongly surpassed analysts’ revenue and earnings expectations in Q1 2024, reporting 42% year-on-year adjusted EPS growth.


Portfolio Earnings and Dividend Calendar

❖ The Q1 2024 earnings season is drawing to an end, but there are still several Smart Investor Portfolio companies scheduled to release their quarterly results in the coming weeks. This week, the reporting firms are Crane NXT (CXT) and Corpay Inc (CPAY).

❖ The ex-dividend date for Parker Hannifin (PH), Cencora (COR), and Howmet Aerospace (HWM) is May 9th, while for Applied Industrial Technologies (AIT) it is May 14th.



New Buy: Dover Corporation (DOV)

Dover Corp. is an American industrial conglomerate, serving customers around the globe. The company provides equipment and components, consumable supplies, aftermarket parts, software and digital solutions, and support services. Its products include printing, identification, marking, and coding systems, waste handling, industrial equipment, refrigeration systems, display cases, industrial pumps, fuel dispensers, nozzles, piping, and electronic tank gauge equipment.

The Illinois-based company was founded in 1947 and has been publicly trading on the NYSE since 1955. With a market capitalization of over $25 billion and annual revenue of $8.4 billion, Dover is a Fortune 500 company.


Diversification, Agility, and Stability

DOV operates through five operating segments: Engineered Products (responsible for about 24% of total revenue), Clean Energy & Fueling (~21% of revenue), Imaging & Identification (~13%), Pumps & Process Solutions (~21%), and Climate & Sustainability Technologies (~21%).

Throughout its history, Dover Corp. has acquired dozens of companies, and while it also spun off several businesses and operations, its buyout track record has added volumes to DOV’s diversification. The company works in the middle of the industrial supply chain across a wide array of industries.

Each of its business segments combines several sub-segments based on previously acquired companies and sells thousands of individual products. The company’s end markets span all industries, ranging from industrial automation and aerospace & defense to digital textile printing. While Dover is not a consumer-facing company, its products are present in a myriad of everyday items, from fuel pumps to supermarket refrigerators.

Its broad global portfolio translates into highly diversified revenue sources, supporting Dover’s ability to maintain profitability and robust cash flow generation through various stages of the business cycle. At the same time, DOV’s diversified business model and corporate agility allow the company to quickly capitalize on various growth opportunities, strengthening its market position. Notably, about a third of the firm’s revenues are recurring, which reduces capital intensity and increases revenue stability.

Dover continues to seek strategic acquisition opportunities, which could help expand its market presence and strengthen its competitive advantages. The growing presence of its portfolio products in all things industrial supports the favorable business outlook, as Dover continues to ride the “reshoring” and “Made in America” secular trends.


Solid Financials, Robust Earnings

Dover Corp. is a financially healthy company. Despite multiple acquisitions, DOV has managed to reduce its debt-to-equity ratio by half in the past five years, supporting its investment-grade credit rating. While its net debt-to-equity ratio is medium-high, the debt is well-covered by operating cash flow, while the interest is covered by EBIT many times over.

As a testament to the strength of its business model, Dover has consistently surpassed its peers in the industry in terms of ROE, ROA, and ROIC. In addition, the company has registered above average earnings growth in the past five years as compared to its peers in the Machinery industry. Over this period, the company’s revenue grew at a CAGR of 4%, while its adjusted EPS rose at a CAGR of 24%.

Dover’s earnings resilience was evident in its Q1 2024 report, as it exceeded EPS estimates for yet another quarter. Last quarter was expected to be a difficult one, but strong growth across several of DOV’s end markets, coupled with improving order and shipment trends, offset weaker trends in some of the markets associated with its Clean Energy & Fueling segment. Still, the segment as a whole joined other company’s segments in positive territory, returning to organic growth after a prolonged weakness in its top-line performance.

Meanwhile, the company’s largest segment, Engineered Products, extended its strong growth trend into another quarter, with sales and EBIT rising significantly above consensus. This division is projected to continue accelerating through 2024, counterbalancing the expected softening in Climate & Sustainability Technologies.

Q1 2024 results underscored DOV’s ability to navigate market challenges. Order rate momentum and solid underlying demand allowed Dover’s management to narrow its full-year guidance to the higher end of the previously provided range. While at the end of 2023 the company guided for adjusted EPS of $8.95 to $9.15 this year, now it forecasts the range of $9 to $9.15.


Total Return in Focus

Dover’s solid balance sheet and robust delivery continue to support the company’s “Dividend King” status, reserved for companies that have raised their payouts annually for at least 50 years. Dover has established an exceptional record of increasing dividends for 68 consecutive years. While its dividend yield is relatively low at 1.2%, the long track record of payout increases speaks volumes about the company’s stability and commitment to shareholder returns.

Dividends are an integral part of Dover’s capital allocation strategy aimed at returning excess capital to shareholders. In addition, after a break in 2023, buybacks have returned this year to constitute another important part of this strategy. In February, the company authorized a new $500 million accelerated share repurchase program. During Q1, Dover spent $425 million to acquire its shares.

Dover’s stock has risen over 26% over the past 12 months, slightly outperforming the S&P 500. Despite its strong run, DOV is still attractively valued, trading at a discount to the Industrial sector, as well as to its industry. In addition, based on future cash flows, the company is trading about 20% below its fair value.



Dover Corporation is an industrial powerhouse with a highly diverse portfolio, which allows it to capitalize on megatrends such as American re-industrialization, while also profiting from upcycles in its various end markets. The company’s Dividend King status is a testament to its ability to maintain robust profitability for decades, as well as to its commitment to increasing shareholder value. Considering these factors and its modest valuation, we believe that DOV can be a valuable addition to the Smart Investor portfolio.



New Sell: CDW Corporation (CDW)

CDW Corp. is a provider of technology products and services for business, government, and education clients in the U.S., the UK, and Canada. The company offers various products and services, from hardware to integrated IT solutions. It acts as a value-added reseller for a variety of technology products made by Apple, Microsoft, and other vendors, and serves as a sales and solutions provider for software and cybersecurity vendors.

CDW is one of the oldest holdings in the Smart Investor Portfolio; we purchased the stock in June 2022 and since then, it has gained almost 40%, outperforming the S&P 500.

Since its addition to the Portfolio, the company has always surpassed analysts’ expectations – up until the last report on May 1st. In fact, we had some doubts about CDW’s near-term prospects since the end of last year, as we watched other companies taking a hit from weakness in IT services and hardware spending. Though CDW managed to produce better-than-feared results for 2023, revenue still declined in all its business segments. In the first quarter, the company’s revenues and earnings missed analysts’ estimates, as sales continued to decline across the board.

Moreover, the management said the pipeline and customer spending outlook suggest much slower earnings growth in the current quarter than in the same period in the previous years. The macroeconomic conditions remain uncertain, putting a lid on business spending, especially at SMEs. CDW slightly reduced EPS guidance for 2024, reflecting the slower start to the year.

CDW remains a well-established, robust, and profitable business. However, it is facing a difficult rest of the year, slated to show slower earnings growth than it did in the last several years, while challenges to its growth seem to be on the rise. Notably, CDW said it is “in the early stages of AI adoption”, which raises some red flags about its preparedness to meet customers’ accelerating demand for AI solutions. The company may encounter stiffer competition from its faster-moving peers.

On top of all that, despite the recent drop, CDW’s stock remains richly valued compared to both its peers and its own historical valuations, limiting the potential upside. Taking all this into account, we believe it’s time to lock in the gains and let go of the stock.



Portfolio Stocks Under Review

❖ There are currently no stocks under review.



Smart Investor’s Winners Club

*The 30% Winners Club includes stocks from the Smart Investor Portfolio that have risen at least 30% since their purchase dates.

The markets ebbed and flowed over the recent week, but our exclusive club’s ranks remained unchanged, and includes 13 stocks. However, as we let go of one of the members – CDW – we will not include it in the list.

The Winners Club now includes SMCI, GE, AVGO, EME, ANET, AMAT, TSM, ORCL, GD, APH, PH, and ITT.

The next in line to enter the Winners’ ranks is Cigna (CI) with a 23.6% gain since purchase. Will it close the gap, or will someone else outrun it to the finish line?



Smart Investor Portfolio

 Portfolio Return YTD
Portfolio Volatility (Beta) Portfolio Dividend Yield
15.59% 1.00 0.86%


New Portfolio Additions

Ticker Date Added Current Price
DOV May 8, 24 $181.83

New Portfolio Deletions

Ticker Date Added Current Price % Change
CDW Jun 29, 22 $220.68 +39.60%

Current Portfolio Holdings

Ticker Date Added Current Price % Change
SMCI Nov 8, 23 $819.29 +220.79%
GE Jul 27, 22 $168.78 +202.04%
AVGO Mar 22, 23 $1303.11 +106.54%
EME Nov 1, 23 $375.39 +81.90%
ANET Jun 21, 23 $273.99 +80.84%
AMAT May 31, 23 $207.32 +55.53%
TSM Aug 23, 23 $141.11 +50.45%
ORCL Dec 21, 22 $117.93 +44.70%
GD Dec 22, 21 $293.37 +43.98%
APH Aug 9, 23 $124.72 +41.02%
ITT Oct 18, 23 $134.63 +40.96%
PH Oct 11, 23 $550.18 +38.30%
CI Jul 12, 23 $346.70 +29.03%
CHKP Jul 19, 23 $154.74 +21.54%
HWM Apr 10, 24 $79.83 +21.23%
CXT Oct 25, 23 $62.68 +21.10%
STLA Sep 6, 23 $21.78 +19.93%
MCK Dec 13, 23 $545.75 +18.09%
VRTX Aug 2, 23 $410.24 +17.97%
AIT Dec 6, 23 $193.82 +17.65%
TXT Nov 29, 23 $87.49 +13.76%
DELL Mar 27, 24 $127.55 +11.25%
ELV Mar 6, 24 $536.17 +7.59%
FLT Jan 17, 24 $303.26 +6.79%
AIG May 1, 24 $80.28 +6.60%
FLEX Feb 21, 24 $29.14 +5.08%
PYPL Apr 17, 24 $65.92 +3.93%
REGN Feb 7, 24 $969.97 +3.43%
SNX Apr 3, 24 $120.17 +3.21%
CBOE Apr 24, 24 $184.25 +3.03%
AIZ Feb 28, 24 $178.58 -1.74%
WRB Jan 31, 24 $78.55 -3.77%
J Mar 13, 24 $141.64 -5.05%
COR Mar 20, 24 $226.74 -6.44%


What’s Next?

Our next commentary will come out on Wednesday, May 15thUntil then – we wish you a world of investment success!

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