Metal Rising
In this edition of the Smart Investor newsletter, we spotlight a mission-critical metals specialist riding a powerful upcycle in jet engines and defense platforms. But first, let’s review the latest Smart Portfolio developments.
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Portfolio News and Updates
❖ Citigroup (C) has announced an impending leadership change: the bank’s CFO Mark Mason will step down and transition to become a senior executive adviser to Citigroup CEO Jane Fraser in March 2026. Gonzalo Luchetti, the bank’s head of U.S. personal banking operations since 2021, is slated to replace Mason in the CFO role. This change comes amid a broader reorganization at Citigroup, including the integration of its retail bank into its wealth management business and a consolidation of several business units into a single new group. The deeper integration of Citi’s retail and wealth management businesses is meant to improve efficiency and profitability, while leadership succession signals continuity and stability.
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❖ Keysight Technologies (KEYS) delivered a stellar fiscal Q4 and 2025 report. In FQ4, revenue rose 10% year-over-year, and EPS jumped 16%, both well above expectations, while orders rose 14%. Communications Solutions Group (CSG) revenue was up 11% year-over-year, driven by ongoing investment in AI data center infrastructure, non-terrestrial network applications, and defense modernization. Meanwhile, Electronic Industrial Solutions Group (EISG) returned to strong growth, with revenue up 9% on growth in broad general electronics and leading-edge semiconductor solutions.
For the full fiscal year, orders and revenue grew by 8% – with record orders in aerospace, defense, and government, and wireline – and EPS rose by 14%. The company achieved a record free cash flow of $1.3 billion, of which $375 million was returned to shareholders through buybacks. Moreover, the board authorized a new share repurchase program for up to $1.5 billion, effective immediately.
Looking to FQ1 2026, KEYS expects adjusted earnings per share to come in at $1.53-1.55 billion and EPS at $1.93-2.01, versus the consensus expectations of $1.84 per share on $1.42 billion in revenue. For fiscal 2026, the company now anticipates revenue growth to exceed the high end of its 5-7% long-term target, bolstered by recent acquisitions (Spirent, Synopsys Optical Solutions Group, Ansys Power Artist) contributing approximately $375 million in revenue and generating over $100 million in synergies. Despite expected mild EPS dilution due to acquisitions in FQ1, Keysight aims for EPS growth at or above its long-term 10% target, and projects that the acquisitions will become EPS-accretive within ~12 months post-close.
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❖ IBM (IBM) and Cisco (CSCO) announced a new quantum computing partnership. The industry leaders are planning to build the world’s first large-scale, fault-tolerant distributed quantum computing network. IBM will supply the quantum side of the deal, while CSCO is responsible for sophisticated networking infrastructure, including new quantum networking hardware and software protocols for dynamically connecting quantum processors. Their goal is to have this advanced system working by the early 2030s, potentially laying the groundwork for a future “quantum internet.”
After the ChatGPT launch just three years back created a whole new industry, taking over the minds and the markets, investors and analysts have been on the lookout for the next big thing – and quantum computing appears to be it. With AI helping solve some of the obstacles on the way to stable quantum computing, the quantum era seems to be approaching faster than hoped for. No wonder, then, that long-term quantum leaders like IBM are gaining attention – although most of the praise is drawn to monetizable or already monetized advantages like AI server platforms and cloud software. Just recently, Oppenheimer initiated coverage of IBM with a “Buy” rating and a Street-high $360 price target.
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❖ Microsoft (MSFT) and Nvidia announced an investment and partnership deal with Anthropic to scale its rapidly growing Claude AI model on Microsoft Azure, powered by Nvidia’s technology. As part of this deal, Anthropic committed to purchasing $30 billion in Azure compute capacity, with an option to contract additional compute capacity up to one gigawatt, leveraging Nvidia’s Grace Blackwell and Vera Rubin systems. Microsoft is investing up to $5 billion in Anthropic, while Nvidia is investing up to $10 billion.
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❖ Mizuho said that Alphabet’s (GOOGL) “has already won” the AI race. The firm’s analysts revealed strong enthusiasm among investors and users for Gemini 3, GOOGL’s latest and most advanced AI model. Moreover, the tech giant is well ahead when it comes to making its own custom chips, while the globally dominant Google Search is well-positioned to support AI monetization and market-share gains. Most of Wall Street appears infatuated with Google’s AI developments, particularly Gemini 3 and image generator Nano Banana, while also heaping praise on its cloud unit’s accelerating growth.
Gemini AI has received multiple accolades over the last few days, arriving from industry insiders, company CEOs (such as Salesforce’s Marc Benioff), and analysts. Strikingly, OpenAI CEO Sam Altman himself acknowledged Gemini 3’s superiority, warning employees that Google may have pulled ahead of ChatGPT for now and that the company that introduced GenAI to the world now needs to “catch up.”
Meanwhile, the demand for Google’s cloud and AI offerings is so strong that the company said it needs to double its computing power every six months in order to keep up. However, Google isn’t trying to outspend rivals, rather focusing on building faster, more reliable, and more scalable systems than anyone else – be that more efficient AI models or advanced tensor processing units, or TPUs.
These custom AI chips appear to continue gaining wide recognition. According to media reports, Meta Platforms is in talks to purchase massive amounts of Google’s TPUs for use in its data centers starting in 2027, while also renting large quantities of these chips as soon as next year. If the deal is struck, TPUs will be officially recognized as an alternative to Nvidia’s AI chips. Although some prominent AI firms – particularly Claude AI maker Anthropic – are already using them, a deal with Meta, one of the biggest spenders globally on data centers and AI development, propels Google TPU recognition to a whole new level.
Google Cloud has driven additional Alphabet enthusiasm thanks to a strategic multi-million-dollar contract with the NATO Communications and Information Agency (NCIA) to provide it with highly secure sovereign cloud capabilities to support its digital modernization, AI capabilities, and classified workloads.
Although Alphabet CEO Sundar Pichai publicly warned that a bubble may be brewing around the AI trade, GOOGL has defeated these warnings and the past month’s broad downtrend in tech shares. Alphabet’s stock has surged over 22% in the past month alone, and almost 70% year to date, nearly double that of the second runner-up among the Magnificent Seven bunch, Nvidia. This strong rally has driven GOOGL’s market cap well above that of Microsoft, making Alphabet the second-largest publicly traded company in the world.
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❖ Google’s AI-driven surge has helped propel Broadcom’s (AVGO) parabolic rise over the past few days. AVGO has already been gaining strongly over the past year, thanks to its key role in AI data center infrastructure, positioning it at the receiving end of the hyperscaler capex flood. This key industry standing propelled Broadcom into the ranks of the trillion-dollar club in December 2024, and now it is nearing a $2 trillion valuation – positioning it as the world’s 6th most valuable company.
AVGO has been the key partner and supplier for Google TPUs since 2016, playing a pivotal role in designing and manufacturing these chips. The collaboration guarantees Broadcom a significant and steady revenue stream, exceeding $10 billion in 2025 from Google’s TPU program, and secures an estimated 75% market share in custom AI ASIC accelerators.
GOOGL remains Broadcom’s largest custom AI chip customer, and its chip processing demand has dramatically increased over the past year. However, the company also manufactures custom AI chips for other hyperscalers like Meta Platforms, Microsoft, and OpenAI. As Google AI processor rollout grows, supported by internal and external demand, AVGO is expected to see accelerating demand from Google, while rising recognition of its capabilities may also lead to a significant increase in customer ranks.
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❖ According to a Bloomberg report, Amazon’s (AMZN) data-center infrastructure has expanded to more than 900 facilities across over 50 countries, a scale much larger than previously thought. The report reveals that the company’s massive owned or long-term leased data-center hubs don’t paint the full picture. Alongside these, AMZN rents space and compute power from different third-party providers – from the U.S. data-center operator Equinix to Japanese telecom behemoth NTT – at hundreds of colocation facilities around the world. These colocation rentals of various sizes, ranging from several racks to several buildings, currently supply about 20% of Amazon’s computing power.
Amazon’s AWS operates across 38 regions worldwide, each powered by multiple data centers. The world’s leading cloud service is also the largest provider of rented computing capacity with 30% of global market share, although Microsoft Azure (20%) and Google Cloud (13%) are striving to challenge this position. That’s why, despite its deep expertise in data-center management over the past 20 years and strong preference for ownership of its compute capacity, AMZN complements that with colocations to allow for faster and broader service rollout to keep up with the surging demand.
As if to underscore the strength of its AI ambitions, the tech giant announced plans on Monday to add two massive investments in capacity enhancements. AMZN said it will invest $15 billion in Northern Indiana to build AI and cloud data center campuses. Perhaps even more significant is the announcement of a landmark $50 billion investment plan to expand AI and supercomputing infrastructure for U.S. government clients, positioning AWS as a key provider in the rapidly growing federal AI and cloud services market. This large-scale initiative, beginning in 2026, will expand data center capacity by about 1.3 gigawatts, providing federal clients with access to AWS AI tools, Anthropic’s Claude models, and Nvidia chips.
Amazon’s extensive compute capacity is also supporting its commerce business, which now captures about 40% of all U.S. online sales. AMZN’s AI capabilities deeply integrate into various operational areas, including a sophisticated recommendation engine and logistics management, contributing to its leading position. The company’s massive data center footprint facilitates the machine learning workloads necessary for these AI systems, supporting both customer experience improvements and operational efficiency on a global scale.
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Portfolio Stocks Under Review
❖ We are removing Keysight Technologies (KEYS) from our “Under Review” bracket following its stellar fiscal Q4 and 2025 results and guidance upgrade, as detailed in the Portfolio News and Updates section above.
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❖ We are placing Uber Technologies (UBER) under review following an unexpected post-earnings slide that has continued despite strong fundamentals. The company delivered an impressive quarter – with double-digit revenue growth, surging profitability, record trip and bookings expansion, and a cash-generation profile that now rivals mature platform leaders – yet the stock fell sharply as investors, already sitting on substantial year-to-date gains, appeared to expect even more.
The results themselves were robust across every major line. Gross bookings accelerated, trip growth hit its highest non-rebound level on record, user engagement strengthened, and Uber One continued to deepen loyalty and cross-platform usage. Delivery outpaced mobility, showcasing the breadth of Uber’s ecosystem, while free cash flow remained exceptionally strong. Even adjusted EPS sailed past consensus. The company’s partnerships with Nvidia and Toast also reinforce its long-term positioning in autonomous mobility and restaurant infrastructure – areas that could materially expand Uber’s platform economics over time.
The challenge is not the numbers, but rather the mood. Investor expectations had drifted ahead of reality after a powerful multi-month rally, and guidance for the seasonally strongest quarter, while objectively solid, failed to satisfy the most bullish projections. In parallel, Big Tech optimism – particularly around Google and Waymo – has redirected attention toward autonomous competitors, even though Uber’s strategy and addressable markets differ meaningfully. The result has been a sentiment reset rather than a business-quality downgrade.
This is the core reason Uber moves to review. The long-term setup remains compelling: a scaled platform with rising margins, durable engagement, expanding partnerships, and a clearer path to autonomy monetization than the market currently credits. But in the short term, the stock has become more sensitive to investor anxiety and macro swings than we expected, and the post-earnings pullback shows little sign of stabilizing.
For now, we see no fundamental reason to exit. But given the sharp sentiment shift – and the market’s zero-tolerance stance toward anything short of perfection – we will monitor Uber closely over the coming weeks. If sentiment improves, the current weakness may prove to be a healthy reset. If not, the opportunity-cost argument grows stronger. Either way, UBER stays under review until we see clearer stabilization in both price action and market positioning.
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Portfolio Earnings and Dividend Calendar
❖ The Q3 2025 earnings season is over, but some earnings from Smart Portfolio companies with different fiscal calendars are still arriving. CrowdStrike Holdings (CRWD) is scheduled to release its fiscal Q3 2026 results on December 2.
❖ The ex-dividend date for SS&C Technologies Holdings (SSNC) and Interactive Brokers (IBKR) is December 1.
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New Buy: ATI (ATI)
ATI Inc. is a global leader in specialty materials and components, supplying critical substrates for aerospace, defense, and other high-performance sectors. It manufactures titanium and nickel-based alloys, specialty steels, and complex components – the kinds of materials that enable jet engines, defense platforms, demanding energy applications, and advanced industrial systems. With its integrated portfolio of high-end alloys and precision processing capabilities, ATI plays a strategic, behind-the-scenes role at the intersection of advanced manufacturing and mission-critical engineering.
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Forged to Form
ATI’s roots stretch back more than a century, to the alloy pioneers that became Allegheny Ludlum. Those early stainless-steel and specialty-melting capabilities set the company up for a defining moment in 1996, when Allegheny Ludlum and Teledyne’s metals operations combined. The deal shifted the business away from commodity steel and established a platform for higher-performance materials tied to aerospace, defense, and advanced industrial uses. The corporate structure that ultimately emerged from this union, Allegheny Teledyne Incorporated, developed into Allegheny Technologies Incorporated, known today as ATI.
Through the 2000s and 2010s, ATI deliberately reshaped itself by exiting low-margin steel lines, selling legacy assets, and concentrating its capital on vacuum-melted alloys, titanium products, and large forgings. That multi-year repositioning gradually pushed the company toward long-cycle aerospace and defense programs rather than short-cycle metals markets.
The real acceleration began in 2022. The company adopted its current name, ATI Inc., to reflect its identity as a high-performance materials company rather than a metals producer. That same strategic arc continued in 2023, when the company secured a multi-year wave of aerospace and defense commitments worth roughly $1.2 billion over the following six years. These contracts expanded ATI’s role in next-generation commercial engines, upgraded airframes, and defense platforms, effectively setting long-term volume baselines for titanium and nickel alloys.
ATI spent the next two years tightening its portfolio. In 2024, it divested its precision-rolled-strip operations and completed the wind-down of several older facilities that no longer supported its growth profile. The company redeployed that capital into premium-alloy manufacturing, including expanded melt capacity, improved finishing assets, and additional automation across key plants supporting engine-grade materials.
By 2025, ATI’s strategy was showing clearer shape. The company renewed and expanded long-term titanium agreements with major aerospace manufacturers, locking in ATI’s position in high-temperature, high-strength material flows tied to record commercial aircraft backlogs. It also advanced collaborations with research centers and manufacturing-technology partners to develop improved alloy chemistries, more sustainable melting processes, and digital quality-control systems used across aerospace and defense programs.
ATI today reflects the cumulative result of these steps – divestitures that removed structural drag, investments that expanded its premium-alloy footprint, and long-term contracts that embedded ATI deeper into customers’ production plans. Rather than arriving at a static endpoint, ATI entered 2025 with a more focused portfolio, a stronger aerospace and defense orientation, and a strategic roadmap built around sustained capacity growth through the rest of the decade.
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Material Ascend
ATI operates today as a high-performance materials company built for the most demanding environments – places where heat, pressure, and precision define whether a system performs or fails. More than 70% of ATI’s revenue comes from aerospace and defense, the two markets that now anchor the company’s identity. ATI supplies titanium and nickel-based alloys, engineered forgings, and powder-metal materials used in jet engines, airframes, missile systems, and naval reactors. These are not commodity metals but mission-critical components with decades-long qualification cycles and tightly controlled manufacturing processes.
Aerospace is the largest engine of growth. Jet engines account for roughly 39% of total revenue, driven increasingly by next-generation LEAP and GTF platforms that require ATI’s proprietary high-temperature alloys. About half of this revenue now comes from maintenance, repair, and overhaul work – recurring shop-visit cycles that support sustained demand as airlines keep aircraft in service longer and next-generation engines begin their heavy-maintenance phases. Airframes contribute close to 10% of ATI’s revenue, and the company has become the majority supplier of key titanium sheet and plate for major Airbus programs. New long-term contracts beginning in 2026 are expected to expand ATI’s share further as production rates rise.
Defense represents just over 30% of total company revenue and remains ATI’s fastest-growing market. The company’s materials support missile propulsion, naval nuclear reactors, armored vehicles, and rotary-wing platforms – programs with multi-year production visibility and increasing geopolitical urgency. Winning “Supplier of the Year” from General Dynamics U.K. underscores ATI’s reliability, a prerequisite for deeper participation in these systems as modernization accelerates.
ATI has also expanded capacity by about 10% through a series of operational improvements that have unlocked meaningful throughput without major capital infusion – a quiet strength that lets the company match surging aerospace and defense demand in real time. On top of that, customer-funded investments in proprietary nickel and titanium alloys continue to build ATI’s competitive moat, with new melt and forging projects tied directly to long-term engine and airframe programs.
ATI’s two reporting segments reflect this demand landscape. High Performance Materials & Components (HPMC) is almost entirely tied to aerospace and defense – about 92% of its revenue – while Advanced Alloys & Solutions (AA&S) draws more than 45% from the same markets. The remainder of AA&S supports a wide range of civilian applications: clean-energy systems such as flexible solar panels, wind-turbine components, and nuclear-reactor materials; medical technologies including MRI superconducting wire and implantable stents; and precision stainless products used in appliances, electronics, and automotive systems. These markets add diversification, recurring volume, and stability beyond aerospace cycles.
ATI operates across 57 locations in 17 countries, enabling close customer integration and a resilient supply chain across the United States, Europe, and Asia. Its growth model is built on deepening platform roles, expanding customer-funded capacity for proprietary alloys, and continually improving yields and throughput. That combination – high-value materials, global reach, and a balanced portfolio that spans both defense and civilian technologies – positions ATI for durable, broad-based growth through the decade.
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Alloyed Margins
ATI closed the third quarter of 2025 with the kind of rhythm that suggests a company not just benefiting from a strong aerospace cycle, but executing through it. Revenue rose 7% year-over-year to over $1.1 billion – a clean beat versus internal projections – while adjusted EPS reached $0.85, landing a full $0.10 above the high end of guidance. It marked ATI’s fourth straight quarterly beat on adjusted earnings, and its strongest margin profile since before the pandemic. Adjusted EBITDA came in at $225 million, or $215 million excluding the sale of oil and gas rights, pushing consolidated margins above 20% – nearly double ATI’s 2019 margin structure and ahead of most analyst models entering the quarter.
Both reporting segments contributed to the lift. High Performance Materials & Components posted a 24.2% margin, while Advanced Alloys & Solutions exceeded 17% – an improvement of 190 and 250 basis points year-over-year, respectively. Mix played a decisive role. Aerospace and defense now account for 70% of ATI’s revenue, with jet engines up 19% and defense up 51% year-over-year. These markets carry structurally higher value per pound, and ATI’s deeper integration into next-generation engines and defense programs is showing up directly in profitability. Year-to-date operating cash flow reached $299 million, a $273 million improvement from last year, supported by both earnings strength and tighter working-capital discipline.
ATI’s raised full-year guidance reflects this momentum. Management now expects 2025 adjusted EBITDA of $848-858 million, a $28 million increase at the midpoint, and adjusted free cash flow of $330-370 million, up $40 million at the midpoint. Adjusted EPS is projected at $3.15-3.21. Analysts had been expecting EBITDA in the low-$840 million range and free cash flow closer to $300 million, so the raise puts ATI ahead of consensus on every major line. The company also guided Q4 adjusted EBITDA to $221-231 million, a sequential improvement that contrasts with typical year-end seasonality in metals manufacturing, illustrating the strength of its aerospace and defense mix.
This performance is not isolated to Q3. Across the first three quarters of 2025, ATI has delivered year-over-year growth in revenue, EBITDA, EPS, and free cash flow, while steadily expanding margins through mix and productivity. Incremental margins have approached 50% year-to-date, above ATI’s longer-term 30-40% algorithm and ahead of analyst expectations. The balance sheet remains healthy with net leverage under 2x EBITDA and strong interest coverage, supporting continued investment in high-return alloy capacity.
Looking ahead, both management and analysts see the momentum carrying through the fourth quarter and into 2026. Jet engines are expected to grow in the high single to low double digits next year, airframes should follow a similar trajectory as OEM build rates rise, and defense programs are positioned for continued double-digit increases. ATI is ahead of schedule on its 2027 profitability targets, and long-term agreements across engines, airframes, and defense systems provide visibility through the decade. The financial story is simple: stronger mix, stronger margins, and a growing layer of recurring cash generation – a combination that positions ATI for another year of rising earnings and expanding strategic leverage in 2026.
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Metal Runway
ATI’s closest peers sit at the center of the U.S. aerospace materials ecosystem, led by Howmet Aerospace (HWM), the sector’s standout performer and one of the Smart Portfolio’s highest-conviction holdings. As the dominant force in engineered components and forged structures for next-generation jet engines, Howmet sets the performance and scale benchmark that defines ATI’s competitive orbit. Carpenter Technology provides the most direct materials comparison, matching ATI’s specialty-alloy focus across titanium, nickel, and powder-metal systems for aerospace, defense, and medical applications. Beyond these primary peers, Reliance Inc. provides a broader industrial and metals-distribution context at a comparable scale, while Curtiss-Wright reflects the momentum across U.S. defense suppliers whose programs increasingly rely on advanced materials. Together, they frame a field where ATI’s rising mix quality, margin trajectory, and long-cycle A&D positioning clearly stand out.
ATI’s stock has lagged its direct peers this year, but not by much – gaining nearly 80% (versus HWM’s and Carpenter’s 85%+) as the A&D industry surged on accelerating global demand tailwinds. Despite this strong rally, analysts foresee an additional upside of about 20% for the “Strong Buy”-rated stock.
Although ATI’s valuations seem demanding versus the Industrial sector’s median metrics, the picture changes at peer comparison. The stock’s trailing and forward non-GAAP P/E, EV/EBITDA, Price/Sales, EV/Sales, and Price/Cash Flow are the lowest in the broad peer group except for the underperforming Reliance. Moreover, ATI’s forward PEG ratio of 1.27x is not only low versus peers, but also about 30% below the sector’s median – suggesting a growth-at-a-reasonable-price (GARP) setup.
While ATI doesn’t pay dividends, as opposed to its peers, it rewards its shareholders through generous buybacks. In November 2025, the company said it completed its three-year $600 million share buyback authorization more than one year ahead of schedule. In parallel, there is an additional $700 million buyback plan approved in September 2024, which remains active and ongoing through 2025, with approximately $120 million of repurchase capacity remaining.
In the first three quarters of 2025, ATI repurchased roughly $580 million of its shares, following approximately $300 million in buybacks over 2024. ATI has retired an estimated 8-9% of its share count over the period spanning 2024 and the first three quarters of 2025 – a meaningful tailwind for EPS growth. ATI’s rising free cash flow gives it the means – and its recent behavior the precedent – to continue shrinking its share count over the next several quarters.
With valuations still reasonable, margins expanding, and the A&D supercycle running well into the next decade, ATI enters 2026 with both operating momentum and balance-sheet leverage in its favor. The combination of a stronger mix, disciplined execution, and ongoing share-count reduction positions the stock to keep closing the gap with its best-in-class peers.
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Investing Takeaway
ATI offers investors a compelling mix of structural aerospace and defense tailwinds, rising operational leverage, and a business model built around high-performance materials that become more valuable as systems grow more complex. The company has evolved into a focused supplier of mission-critical alloys and components with deep integration across jet engines, airframes, and defense platforms, giving it durable visibility well beyond typical industrial cycles. Its portfolio spans both advanced aerospace applications and resilient civilian markets, supported by disciplined execution and a global manufacturing footprint. ATI complements this positioning with steady reinvestment and persistent share repurchases, reinforcing per-share growth as demand accelerates. With expanding margins, long-cycle exposure, and a clear runway for mix improvement, ATI presents a strong case for investors seeking durable, upward-biased performance with measured risk.
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New Sell 1: AECOM Technology (ACM)
We are exiting AECOM after a second week of sentiment-driven declines that show no signs of stabilizing. The company remains a high-quality operator with a strong backlog, a credible long-term margin roadmap, and a strategic pivot toward AI-enabled, advisory-led services that should strengthen its competitive position over time. But the market is treating uncertainty as weakness, and ACM has become unusually sensitive to even modest disappointments – a poor setup in a volatile tape.
The company delivered another quarter of solid profitability, with adjusted EPS above expectations and full-year operating income meaningfully higher, supported by a record backlog. However, revenue once again missed consensus, and FY2026 EBITDA guidance landed a touch light, raising near-term questions around top-line momentum.
AECOM also introduced a major portfolio shift: a strategic review of its Construction Management business, including a potential sale. In parallel, the company revealed an AI-driven transformation strategy aimed at reshaping the approach to engineering and project delivery. AECOM also introduced ambitious financial targets, including a goal to achieve operating margins above 20% by 2028 and an adjusted EPS CAGR of at least 15% through 2029. These long-term targets point to a compelling path ahead, but they also raise the execution bar during a period of restructuring and reinvestment.
All this is happening just as investors are demanding clarity, not reinvention. With guidance questioned, revenue softness under the microscope, and the Construction Management review creating a near-term narrative vacuum, investor sentiment has turned against the stock. None of this reflects deterioration in the underlying business – only that the path from here will be longer and bumpier than the market is willing to underwrite today.
Our decision is driven by opportunity cost rather than fundamentals. AECOM is inexpensive and strategically well-positioned, and we expect another chance to revisit the name once the restructuring progresses, guidance stabilizes, or the market re-prices the long-term targets more rationally. For now, stepping aside is the prudent call – allowing us to redeploy capital into setups with cleaner catalysts, stronger momentum, and less sentiment drag.
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New Sell 2: Jacobs Solutions (J)
We are exiting Jacobs after a sharp post-earnings decline that has continued as investors sell anything short of flawless. The company delivered a solid fiscal Q4 and full-year performance – adjusted EPS surged well past consensus, EBITDA margins reached a quarterly record, backlog hit all-time highs, and PA Consulting continued to execute strongly – yet the stock sold off sharply as investors focused on a less-than-perfect headline and a GAAP net-income drop tied to a non-cash valuation loss on Amentum. In a risk-averse market setup, that single blemish overshadowed what was otherwise a strong set of results.
The full fiscal year showed steady progress: mid-single-digit revenue growth, double-digit adjusted EPS expansion, rising margins, a record backlog, and meaningful free-cash-flow strength that enabled the highest shareholder-return year in the company’s history. Balance-sheet flexibility improved, leverage fell, and Jacobs reaffirmed disciplined capital returns alongside the option to increase its stake in PA Consulting. The outlook for fiscal 2026, calling for solid revenue growth, stable margins, and continued cash-flow productivity, indicates underlying momentum remains intact.
Yet the market reaction highlighted a growing divide between operational reality and investor psychology. In an environment where big-cap tech and cyclical industrials are surging, investors have shown little patience for mixed signals – and Jacobs’ combination of a GAAP swing, timing-related earnings noise, and ongoing portfolio transitions became an easy trigger for selling. The company’s shift toward science-based consulting, digital infrastructure, and technology-enabled services is strategically sound, but it introduces variability and narrative complexity at a time when investors prize clarity and clean earnings paths.
Analyst reactions reflect this split tone. Robert W. Baird moved to “Hold,” citing caution around near-term profit impacts as legacy businesses are divested or reshaped. Goldman Sachs, however, initiated coverage with a “Buy” and views the post-earnings pullback as an overreaction, highlighting Jacobs’ leadership in design, consulting, and digital transformation. These opposing views underscore the central issue: the long-term setup is promising, but the near-term is likely to remain volatile and sentiment-driven.
Our decision is ultimately about timing, not fundamentals. Jacobs is a strong business with credible long-term targets, a high-quality consulting mix, and a portfolio aligned with durable structural trends. But the stock has shown that even modest imperfections – a GAAP line driven by a valuation mark, a revenue miss measured in fractions, or incremental noise around portfolio reshaping – can generate outsized moves in the current market. With more straightforward catalysts available elsewhere, and with investor expectations reset to demanding perfection, the risk-reward for the next several quarters has become less favorable.
We will revisit Jacobs once execution stabilizes and the market assigns clearer credit to its consulting-led transformation. For now, stepping aside is the prudent call – preserving capital for opportunities with cleaner momentum and less sentiment drag.
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Smart Investor’s Winners Club
The 30% Winners Club represents stocks from the Smart Investor Portfolio that have risen at least 30% since their purchase dates.
Stocks crashed and then surged – with MTZ returning to the ranks of the Winners, expanding the club to 18 stocks: AVGO, GE, ANET, APH, HWM, TSM, EME, ORCL, PH, IBKR, GOOGL, CRWD, VRT, IBM, RTX, MTZ, BK, and CSCO.
The first contender for the Club’s entry is now MS with a 28.56% gain since we purchased it on June 4. Will it enter the ranks of the Winners, or will another stock outrun it to the finish line?
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