Guardians of Capital
In this edition of the Smart Investor newsletter, we examine the stock of the world’s leading custodian bank. But first, let’s dive into the latest Portfolio news and updates.
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Portfolio Updates
❖ Market & Portfolio Update: Despite the “buy the dip” rally on Friday and Monday, stocks are still logging losses year-to-date, and the market doesn’t seem anywhere near the end of the turbulence. We have warned in previous newsletters about a market correction – which has already happened – and the possibility of a bear market in the coming months. While this is not our base-case scenario, we take the risk of further downside seriously when assessing our portfolio holdings.
At Smart Investor, we don’t base our “buy” and “sell” decisions on short-term market swings, except when price considerations come into play. Still, macro conditions affect all corners of the market, and some portfolio adjustments may be necessary, depending on how current developments reshape the economic backdrop – and, in turn, corporate earnings.
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❖ GE Aerospace (GE) plans to invest nearly $1 billion in its U.S. facilities and supply chain in 2025. This investment – almost double that of 2024 – aims to enhance manufacturing capabilities and incorporate innovative new parts and materials essential for the future of flight. The initiative is expected to help overcome engine supply problems that have hampered efforts by key customers Airbus and Boeing to meet soaring travel demand. GE also plans to hire 5,000 U.S. workers this year, including adding roles in manufacturing and engineering operations.
In other company news, GE has won a $5 billion contract to supply F110-129 jet engines for foreign military sales. The five-year deal covers engine production, spare parts, and modernized monitoring systems for the Royal Saudi Air Force, Royal Jordanian Air Force, and Bulgaria, with potential expansions.
❖ Salesforce (CRM) announced a $1 billion investment in Singapore to develop digital workforces over the next five years. The funding will support Agentforce, its AI-driven workforce platform, aimed at addressing Singapore’s labor shortages by integrating AI agents with human employees. Singapore Airlines will use the technology to enhance customer service with AI-powered insights. This move strengthens Salesforce’s presence in Southeast Asia, aligning with Amazon’s (AMZN) $9 billion and Microsoft’s (MSFT) $2.2 billion regional investments as U.S. tech firms expand in these high-growth markets.
❖ According to media reports, Taiwan Semiconductor (TSM) has approached Nvidia, AMD, Qualcomm, and Broadcom (AVGO) to invest in a joint venture that would take over Intel’s foundry division. Under the proposal, TSMC would manage Intel’s custom chip production but hold a stake below 50%. The move highlights Intel’s struggles in the foundry business and TSMC’s push to expand U.S. chipmaking partnerships. If successful, the deal could reshape the global semiconductor landscape, strengthening TSMC’s dominance while giving U.S. chipmakers greater control over advanced manufacturing capabilities.
In other company news, TSM is reportedly manufacturing custom AI training chips for Meta Platforms as the social media giant seeks to reduce dependence on Nvidia and lower AI infrastructure costs. The chip, part of Meta’s Training and Inference Accelerator (MTIA) series, recently completed a crucial tape-out phase, with full deployment targeted for 2026. If successful, the move could undermine Nvidia’s dominance in AI hardware and strengthen Meta’s control over its AI systems. The partnership highlights Big Tech’s growing shift toward in-house AI chip development to optimize performance and cut costs.
❖ Alphabet (GOOGL) has announced an agreement to acquire cloud-security startup Wiz for $32 billion in an all-cash deal. This acquisition underscores Alphabet’s ongoing strategy to enhance its cybersecurity capabilities. The deal, which could be GOOGL’s largest acquisition ever, highlights its commitment to expanding its cloud security services, leveraging Wiz’s AI-powered threat detection. GOOGL said it expects the deal to be finalized in 2026 as the size of the acquisition and its importance for the industry should trigger a thorough review by U.S. regulators. JPMorgan said that the Wiz acquisition will further strengthen Google’s multi-cloud value proposition and deepen its enterprise relationships as Wiz is used by over 50% of Fortune 100 companies.
In other company news, Google’s AI research division, DeepMind, has introduced two new models: Gemini Robotics and Gemini Robotics-ER. These models aim to enhance robots’ abilities to handle unfamiliar situations – a longstanding challenge in robotics. Gemini Robotics focuses on improving robots’ dexterity and interactivity, enabling them to perform complex tasks like folding origami and organizing desks. Gemini Robotics-ER specializes in spatial understanding, assisting developers in creating programs that leverage Gemini’s reasoning capabilities. This development signifies a substantial advancement in AI robotics, with major tech companies investing heavily to push the field forward.
In yet other news, Alphabet’s Google is in late-stage talks to acquire AdHawk Microsystems, a Canadian eye-tracking technology firm, for $115 million. The deal, expected to close this week, aligns with Google’s push into smart glasses and AR/VR headsets, with AdHawk’s team joining Google’s Android XR division. AdHawk’s low-power, high-speed eye-tracking sensors could enhance Google’s next-gen immersive computing efforts, helping it compete with Apple and Meta in AR hardware. The acquisition signals Google’s renewed commitment to extended reality (XR) as it builds out its future AI-powered wearable ecosystem.
❖ Lockheed Martin (LMT) has received an additional $122.6 million as part of a previously awarded contract amounting to $1.93 billion with the U.S. Air Force. The addition is to increase production capacity for two key missile systems: the Joint Air-to-Surface Standoff Missile (JASSM) and the Long-Range Anti-Ship Missile (LRASM). The funds will be used to procure tooling and test equipment, ensuring Lockheed can meet growing demand for these advanced weapons. LMT owns the intellectual property for both missile systems, making it the only company with the expertise and infrastructure to produce them.
❖ Charles Schwab (SCHW) surged over the past week, outperforming the S&P 500 by a significant margin, driven by impressive February metrics. The firm reported $48 billion in new assets for February 2025, a 44% increase from the previous year. The sharp rise highlights Schwab’s market strength and has boosted investor confidence. Total client assets equaled $10.28 trillion, up 16% YoY. Moreover, SCHW gained 362,000 new brokerage accounts in February, marking the 15th straight month of new account additions surpassing 300,000.
❖ Oracle’s (ORCL) is once again the leading contender to manage TikTok’s U.S. operations, as the deadline for ByteDance to divest fast approaches. Since Oracle has been storing all of TikTok’s U.S. data since 2022, a takeover would be a natural fit.
❖ IBM (IBM) and the Basque Government will deploy Europe’s first IBM Quantum System Two at the IBM-Euskadi Quantum Computational Center in San Sebastian, Spain. This marks a major upgrade from the originally planned Quantum System One, reinforcing IBM’s leadership in quantum computing. For IBM, this is a strategic milestone, expanding its European footprint and strengthening ties with governments and research institutions. The installation highlights IBM’s modular quantum approach, positioning it as the go-to provider for national quantum programs. Success in Spain could lead to future deals across Europe, helping IBM commercialize quantum computing. The project also supports the Basque Country’s push to become a global tech hub, accelerating research, education, and industry applications.
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Portfolio Stocks Under Review
❖ We are keeping Hewlett Packard Enterprise (HPE) under review due to its disappointing FQ2 revenue and earnings outlook, as discussed in the “Portfolio News and Updates” section above. Under normal market conditions, weak guidance would warrant selling the stock. However, given the extreme market anxiety and volatility, we are exercising caution with the “sell” button for now.
❖ We are keeping Salesforce (CRM) under review due to muted guidance it provided in its earnings report. Although analysts remain bullish on CRM, several have reduced price targets, raising concerns about the timeline for meaningful returns on its heavy AI investments. D.A. Davidson analysts argue that despite Agentforce’s early success, Salesforce’s AI focus is coming at the expense of its core business, which continues to decelerate. Since Agentforce isn’t expected to meaningfully contribute to revenue for at least a year, overall revenue growth may slow further in 2025. Amid elevated market volatility, this slower growth trajectory could weigh on the stock, despite its strong long-term potential.
❖ We are keeping ITT (ITT) under review despite strong Q4 2024 results and the following multiple analyst price-target upgrades. Our caution is primarily driven by President Trump’s recent announcement of a 25% tariff on all steel and aluminum imports, effective March 12th, 2025. As a manufacturer of engineered components and customized technology solutions, ITT relies on steel and aluminum as key raw materials. The imposed tariffs are expected to increase the costs of these materials, potentially impacting ITT’s production expenses and profit margins. It’s important to note that the full impact of the tariffs will depend on various factors, including ITT’s ability to mitigate increased costs through supply chain adjustments, pricing strategies, or operational efficiencies. Additionally, potential retaliatory measures from trade partners and overall market conditions will play a role in shaping the company’s financial outlook. Therefore, ITT remains in focus until we gain a clearer picture of the policy developments and their impact on the company.
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Portfolio Earnings and Dividend Calendar
❖ The Q4 2024 earnings season for the Smart Portfolio companies is over, with the next reports – from companies whose fiscal years are shaped differently – scheduled for mid-April.
❖ The ex-dividend date for Broadcom (AVGO) is March 20th, while for Hewlett Packard Enterprise (HPE) it is March 21st.
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New Buy: Bank of New York Mellon (BK)
Bank of New York Mellon Corporation, aka BNY Mellon, is the world’s largest custodian bank, providing institutional clients with asset servicing, investment management, and treasury solutions. As a globally trusted custodian institution, it safeguards and administers trillions in financial assets, ensuring secure and efficient global transactions. The company delivers fund administration, liquidity management, and securities processing services, supporting asset managers, corporations, and governments worldwide. Leveraging advanced technology, BK enhances operational efficiency, risk management, and regulatory compliance. With a focus on digital transformation and scalable financial infrastructure, the bank enables clients to navigate complex markets while optimizing capital allocation and investment strategies.
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Custody King
Founded in 1784, Bank of New York Mellon is the world’s largest custodian bank, holding over $40 trillion in assets under custody and administration (AUC/A), a scale unmatched by any competitor. It is a critical backbone of global financial markets, facilitating the safekeeping, settlement, and management of institutional assets across 35 countries. As a trusted custodian for central banks, sovereign wealth funds, asset managers, and pension funds, BK plays a key role in financial infrastructure, ensuring market liquidity and operational efficiency.
BK also ranks among the largest investment services firms, with a comprehensive suite of fund administration, securities lending, and treasury management solutions. It is a leader in foreign exchange and cash management, processing trillions in daily transactions for institutional clients worldwide. In the asset management space, BK oversees more than $2 trillion in assets under management (AUM) through its subsidiary, BNY Mellon Investment Management, making it one of the largest multi-boutique investment firms.
The company’s dominance stems from strategic acquisitions, technological investment, and regulatory trust. The 2007 merger of The Bank of New York and Mellon Financial created the modern-day BK, consolidating two centuries of financial expertise. More recently, BK has led digital transformation efforts in the custody business, integrating AI, blockchain, and cloud-based systems to enhance efficiency, reduce risk, and meet evolving regulatory demands.
BNY Mellon is also a top custodian for alternative assets, expanding into private equity, hedge fund services, and digital assets. As financial markets become increasingly complex, BK continues to maintain its leadership by evolving its platform to support institutional clients in managing risk, optimizing liquidity, and streamlining investment operations.
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Scaling the Summit
BNY Mellon’s revenue is primarily fee-based, with $14.3 billion of its $18.6 billion total revenue in 2024 coming from fees and other non-interest sources, making up 77% of total revenue. This stability is driven by its core businesses, which provide predictable, recurring income streams.
The largest revenue driver is Securities Services, contributing approximately 46% of total revenue. This segment includes asset servicing, clearing, and collateral management, generating steady fees from institutional clients. As the world’s leading custodian bank, BK relies on this business as the foundation of its operations. Investment and Wealth Management accounts for 20% of revenue, with $2 trillion in assets under management (AUM) across multiple asset classes for institutional and retail clients.
Market and Wealth Services contribute 34%, driven by Pershing’s services. BK’s subsidiary Pershing is a leading provider of clearing, custody, and wealth management solutions for broker-dealers, registered investment advisors (RIAs), and hedge funds. As part of BK’s Market and Wealth Services segment, Pershing generates recurring fee-based revenue, reinforcing the bank’s stability and reducing reliance on market-driven fluctuations affecting its Investment and Wealth Management division.
BNY Mellon also benefits from Net Interest Income (NII), which totaled $4.3 billion in 2024. Though representing just 23% of total revenue, NII provides an additional earnings cushion, particularly in a higher-rate environment. NII is earned across all segments but is primarily concentrated in Securities Services and Market and Wealth Services, benefiting from higher yields on deposits and securities lending activities.
Geographically, BK derives about 48% of its revenue from the U.S., with the rest originating internationally. Unlike banks that are reliant on cross-border lending or investment banking, BK’s custodian and transaction facilitator role insulates it from direct risks tied to tariffs, trade wars, or geopolitical disputes, ensuring revenue stability even during economic or diplomatic volatility.
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Rewriting Finance with AI
Strategically, BK is investing in technology-driven services, particularly in alternative investments and digital assets, expanding beyond traditional custody. The firm has prioritized Pershing while doubling down on AI and blockchain integration to drive efficiency. Asset servicing and treasury solutions remain BK’s core growth areas, given their higher margins, scale advantages, and lower sensitivity to market fluctuations compared to asset management.
As part of its commitment to leading financial technology innovation, BNY Mellon has entered a multiyear partnership with OpenAI to enhance its internal AI platform, Eliza. This integration will equip the bank with advanced reasoning models and AI-powered analytics, enabling employees to streamline workflows, automate processes, and generate deeper insights across its vast financial operations. More than half of BNY Mellon’s 52,000 employees actively use Eliza, demonstrating the rapid adoption of AI-driven efficiency.
Additionally, the bank is investing in blockchain technology to modernize settlement and asset servicing. BNY Mellon was the first major U.S. bank to launch a digital asset custody platform, allowing institutional clients to hold both crypto and traditional assets on the same infrastructure. This strategic expansion ensures that BNY Mellon remains a critical player in the evolving landscape of tokenized securities, blockchain-based payments, and next-generation financial infrastructure.
With a history spanning over 240 years, America’s oldest bank is not just adapting to technological change but positioning itself at the forefront of AI, blockchain, and digital finance, ensuring its leadership in the next era of global banking.
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Fortress of Finance
Bank of New York Mellon maintains a stable financial position, reinforced by its fee-based business model and market-leading role in global custody and asset servicing. With recurring revenue streams, long-term client relationships, and the essential nature of its financial infrastructure, BK ensures steady demand across economic cycles. Unlike commercial banks reliant on credit cycles, BK benefits from structural demand for its custodial and transaction services, making it one of the most resilient financial institutions in any market environment.
In 2024, BK reported record revenue of $18.6 billion, a 5% year-over-year increase, driven by growth in Securities Services, Market and Wealth Services, and Investment Management. Fourth-quarter revenue surged 11% from the prior year, while full-year net income jumped 41% to $4.3 billion. Strong fee growth, higher net interest income, and disciplined expense management contributed to improved profitability, with a pre-tax operating margin of 31% and a return on tangible common equity (ROTCE) of 22.8%.
NII totaled $4.3 billion for 2024, reflecting a 1% decline from the prior year due to changes in deposit mix, partially offset by higher yields on investment securities and balance sheet growth. However, Q4 2024 NII rose 8% year-over-year, benefiting from an improved rate environment and reinvestment at higher yields. Looking ahead, BK expects mid-single-digit NII growth in 2025, signaling a rebound as it optimizes its portfolio and capital deployment.
BNY Mellon maintains a strong balance sheet, with $52.1 trillion in assets under custody and administration (AUC/A) and $2.0 trillion in assets under management (AUM). Its Tier 1 leverage ratio stood at 5.7%, while its CET1 ratio was 11.2%, demonstrating solid capital strength. The bank returned $4.4 billion to shareholders in 2024, including $1.3 billion in dividends and $3.1 billion in share buybacks, reinforcing its commitment to capital efficiency.
Full-year adjusted EPS reached $6.03, marking a 19% increase from 2023. The strong EPS growth was driven by higher fee revenue, expanding pre-tax margins, disciplined expense management, and aggressive share repurchases, which reduced the share count and enhanced per-share earnings. At its Q4 earnings call, BK’s management underscored the company’s commitment to return ~100% of its earnings to shareholders.
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Banking on Growth
BNY Mellon’s stock has surged over 50% in the past year, significantly outperforming the S&P 500 and its industry peers. Despite this strong rally, top Wall Street analysts expect additional upside, with consensus price targets implying an additional 15%+ gain over the next 12 months. Many analysts have raised their price targets in recent months, citing improved financial performance and operational efficiency.
The stock reached an all-time high in February before retreating about 9%, bringing its valuation to more attractive levels. BK currently trades at a small premium to the broad Financials sector, with its P/E ratio positioned at the midpoint of its closest peers. Discounted cash flow models suggest BNY Mellon remains undervalued by over 20%, leaving ample room for further appreciation.
Beyond stock price gains, BNY Mellon consistently rewards shareholders through dividends and buybacks. The bank has paid dividends for over a century and has raised its payout for 16 consecutive years. With a 2.24% dividend yield – nearly double the sector average – and an annual dividend growth rate of nearly 10% over the past five years, BK remains an attractive income-generating investment. With a moderate payout ratio and strong financials, the bank is well-positioned to sustain robust dividend growth in the years ahead.
Share repurchases further enhance shareholder value. In April 2024, BK’s Board authorized a $6 billion share buyback program, reinforcing its commitment to capital returns. In 2024 alone, the bank repurchased $3.1 billion worth of shares, reflecting confidence in its financial strength and long-term growth prospects. The program provides flexibility to adjust buybacks based on market conditions while ensuring efficient capital allocation.
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Investing Takeaway
Bank of New York Mellon stands as the world’s leading custodian bank, benefiting from a fee-based business model that ensures stability across economic cycles. Its dominant position in asset servicing, investment management, and treasury solutions provides steady demand and long-term client relationships. Unlike commercial banks, BK is insulated from credit cycles and market volatility, making it a resilient financial institution. Strategic investments in AI, blockchain, and digital assets position it at the forefront of financial technology, enhancing efficiency and expanding growth opportunities. Strong capital management, consistent dividends, and aggressive share buybacks reinforce its commitment to shareholder value. With a proven track record of operational excellence and financial strength, BNY Mellon remains a compelling investment for those seeking stability, innovation, and long-term growth potential in the financial sector.
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New Sell: DICK’S Sporting Goods, Inc. (DKS)
DICK’S Sporting Goods is an omnichannel sporting goods store chain, serving athletes and outdoor enthusiasts in more than 850 physical stores across the country, and also ships to international customers through online shopping platforms.
DKS, with its vast network of retail locations and expanding online presence, is one of the best stocks in the Consumer Discretionary segment. The company features rock-solid balance sheet and has displayed steady revenue growth over the past five years, while its EPS growth has been more than stellar.
Last week, DICK’S released another set of strong results, with Q4 2024 revenues and EPS considerably above analyst estimates. Reflecting its commitment to shareholder returns, DKS announced a 10% increase in its quarterly dividend and authorized a $3 billion share repurchase program. However, the conservative guidance for the upcoming fiscal year raised concerns among investors.
The company anticipates a 1-3% increase in FY2025 comparable store sales, down from the 5.2% growth observed in the previous year. Additionally, the projected EPS range of $13.80 to $14.40 falls short of the $14.82 consensus estimate, reflecting expectations of a less favorable economic environment. While many companies have been guiding conservatively in the current environment, Consumer Discretionary may be one of the hardest-hit sectors in case of economic downturn, which looks increasingly likely.
Consumer spending is showing clear signs of strain, with February retail sales rising just 0.2%, well below expectations, while January’s figures were revised downward. Discretionary sectors like sporting goods are particularly vulnerable in this environment, as consumers pull back on non-essential purchases. Economic uncertainty is deepening, with new tariffs set to take effect in April under President Trump’s administration, creating fresh concerns about supply chain costs and inflationary pressures that could weigh on consumer confidence.
Although the stock is still rated a “Buy” and there were no downgrades so far, analyst sentiment is mixed, with nine top Wall Street firms slashing their price targets on DKS in the past month alone. While DICK’S remains a leader in its field, slated for long-term growth and continued market-share gains, worsening near-term macroeconomic backdrop poses several mounting headwinds, making it an increasingly risky stock to hold. We plan to revisit this sporting goods leader in the future, when economic conditions stabilize. However, for now, we believe the time has come to sell the stock.
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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 were a sea of red over the past month, but our Winners’ ranks have remained unchanged, still including 12 stocks: GE, AVGO, TPL, ANET, HWM, EME, TSM, ORCL, PH, APH, IBKR, and ITT.
The first contender is now BRK.B with a gain of 23.93% since purchase. Will it close the gap, or will another stock outrun it to the finish line?
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Disclaimer
The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.
