Racks and Returns
In this edition of the Smart Investor newsletter, we spotlight the stock of a fast-growing industrial and HVAC specialist with expanding exposure to data center cooling. But first, let’s dive into the latest portfolio news and updates.
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Portfolio News and Updates
❖ Oracle (ORCL) shares soared after fiscal first quarter 2026 results, powered by forward-looking metrics that cemented its place as the fourth hyperscaler – alongside Microsoft, Alphabet’s Google, and Amazon.
While the company slightly missed elevated revenue and EPS expectations, investors dismissed this as immaterial, focusing instead on a 359% year-over-year surge in Oracle Cloud Infrastructure (OCI) Remaining Performance Obligations (RPO), or backlog. The jump was fueled by four new multi-billion-dollar contracts, including a five-year agreement worth 300 billion dollars with OpenAI, alongside deals with Nvidia, Meta, xAI, AMD, and others. Oracle expects to close further large contracts in the coming months that could push RPO well above $500 billion. Another standout figure came from multi-cloud database revenues, which jumped 1,529% in FQ1. Although this segment represents just 11% of Oracle’s cloud revenue, it is expanding rapidly through hyperscaler partnerships and AI workload adoption. Oracle continues to aggressively scale its multi-cloud data centers, with 23 already live and 47 more planned.
OCI’s growth outlook stunned analysts and investors alike, with revenue projected to climb from $18 billion this fiscal year to $144 billion by fiscal 2030 – projections backed by the long-term nature of its contracts. The strength of Oracle’s results and guidance underscored its position as a key beneficiary of the AI-cloud cycle, spurring analysts to raise price targets. Citi set a Street-high of $410, citing a “bookings bonanza” that sharply lifted revenue and EPS forecasts, while the average target across Wall Street still implies about 12% upside despite Oracle’s 80% year-to-date surge.
In another significant development, Oracle secured a major cloud contract with NATO. The NATO Communications and Information Agency will migrate mission-critical systems to Oracle Cloud Infrastructure, reinforcing Oracle’s momentum in the government and defense market and adding another catalyst for OCI growth.
In yet another news, ORCL is reported to be a part of a consortium enabling TikTok to continue U.S. operations following a framework deal reached between the U.S. and China during trade talks in Madrid. The agreement secures TikTok’s U.S. cloud business under Oracle’s infrastructure, reinforcing Oracle’s position in the tech sector. This deal highlights Oracle’s growing role in consumer technology and data security amid broader U.S.-China trade negotiations.
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❖ Taiwan Semiconductor, aka TSMC (TSM) reported its second-highest monthly sales ever in August 2025, with consolidated revenue of NT$335.77 billion (around US$11.09 billion), representing a 33.8% year-over-year increase. TSMC’s cumulative revenue jumped 37.1% YoY in the first eight months of 2025, fueled by robust demand for AI-related chips driving higher production, especially from hyperscale companies like Nvidia and other AI infrastructure players. TSMC projects a strong third quarter with sales expected to increase about 38% YoY.
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❖ Alphabet (GOOGL) extended its rally as Google Cloud signaled a major growth phase ahead. The company disclosed that its backlog of non-recognized sales contracts has reached $106 billion, with more than half – nearly $58 billion – expected to convert into revenue by 2027. Momentum is tied to the AI boom, with nine of the ten largest AI labs, including OpenAI and Anthropic, now among its customers. After lagging mid-year, the stock has surged more than 35% in the past three months, catching up to fundamentals and AI-driven potential. Analysts are racing to keep pace, with Citi, Evercore ISI, Canaccord, Mizuho, and others significantly hiking price targets in just the past two weeks. On Monday, Alphabet’s market cap crossed the $3 trillion market cap mark for the first time, becoming the fourth company to reach the milestone alongside Apple, Microsoft, and Nvidia.
In other notable news, Alphabet will invest £5 billion (about $6.7 billion) in the UK to expand AI infrastructure, including a new Waltham Cross data center expected to support 8,250 jobs annually. The move strengthens Google Cloud and DeepMind’s European presence, bolsters political goodwill, and underscores Alphabet’s long-term commitment to AI leadership, enhancing strategic positioning against Microsoft and Amazon in the global cloud and AI race.
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❖ Microsoft (MSFT) and OpenAI have signed a non-binding memorandum to redefine their partnership, enabling OpenAI’s planned shift into a for-profit Public Benefit Corporation aimed at attracting capital and scaling AI development. The nonprofit parent will retain control and receive an equity stake valued at over $100 billion. Microsoft, a major investor with more than $13 billion committed, will keep access to OpenAI’s technology, including potential AGI, but the deal reduces its exclusivity as OpenAI expands cloud ties with Oracle and Google. In parallel, OpenAI now projects that revenue-sharing with commercial partners will fall to about 8% by decade’s end – down from today’s 20% – though in absolute terms Microsoft’s share could remain the same or even rise if OpenAI’s revenues continue to expand. Microsoft’s exact ownership stake has not been disclosed as negotiations continue.
In another significant development, Microsoft is preparing to significantly expand its own AI infrastructure, signaling a shift toward greater self-sufficiency. Mustafa Suleyman, chief executive of Microsoft AI, told employees that the company will make “significant investments” in clusters of computing power to train in-house large language models. The move positions Microsoft to compete more directly with OpenAI, Anthropic, and Google, even as it deepens ties with OpenAI and incorporates Anthropic’s models into some products. CEO Satya Nadella emphasized a “multimodel” approach across the product portfolio, allowing customers to use the model they prefer. Microsoft recently released its first model developed under Suleyman, trained on 15,000 Nvidia H100 chips – far fewer than competitors required – highlighting efficiency gains. This dual strategy of building, partnering, and integrating multiple models underscores Microsoft’s determination to remain central to the AI ecosystem while reducing over-reliance on any single partner.
Moreover, Microsoft is competing with GOOGL for the slice of a lucrative UK market. CEO Satya Nadella announced a $30 billion investment in the UK over four years, including building the country’s largest supercomputer.
In yet other news, MSFT has announced a 9.6% increase in its quarterly dividend to $0.91 per share, reflecting its strong financial performance.
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❖ Macquarie initiated coverage of Broadcom (AVGO) with a “Buy” rating and $420 target – a new Street high – citing accelerating adoption of the company’s AI-focused ASIC technology. Analysts noted ASIC is expanding faster than GPUs, particularly across hyperscalers and vertical AI markets. Broadcom’s dominance in AI ASIC and cloud networking – including Ethernet switching, routing, and SerDes IP – underpins the view that it remains a critical enabler of next-generation infrastructure.
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❖ Arista Networks (ANET) stock dropped last week after AI and cloud infrastructure networking giant held its investor day. The management impressed analysts with a projection of 20% YoY revenue growth in 2026, driven by a 70% surge in AI networking revenue. Barclays noted the 70% growth outlook may be conservative given the company’s massive backlog and robust cloud capex trends in the tech sector. Multiple investment firms – including Goldman Sachs, JPMorgan, Morgan Stanley, Wells Fargo, Wolfe Research, Evercore ISI, and others – raised their price targets and reiterated “Buy” ratings. While some viewed Arista’s forecast of lower operating margins in 2026 due to increased AI infrastructure capex as a risk, these margins are expected to remain healthy at 43-45%. Analysts from Wolfe Research and others also emphasized that Arista historically guides conservatively, and they believe the margin outlook is no exception. Last week’s stock decline likely reflected a “sell the news” dynamic, with profit taking following the stock’s 120%+ rally from its April lows.
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❖ According to industry specialists such as Gartner, IBM (IBM) is a frontrunner in the race for “quantum advantage,” competing with Alphabet’s (GOOGL) Google, Microsoft (MSFT), and an array of agile, well-funded startups to build the first practical quantum computer. IBM, MSFT, and GOOGL lead the charge, mindful of intensifying competition on all fronts.
IBM and Google are taking similar approaches to quantum development, but Big Blue appears to be one step ahead – boasting the largest quantum research ecosystem, its own microchip fab, and advancing modular commercial-scale hardware through its Quantum System Two, which leverages superconducting and neutral atom-based qubits. The company aims for a utility-scale, fault-tolerant quantum computer by 2029, anticipating near-term revenue in R&D services, certification, and joint development with partners like AMD. Moreover, IBM is now working on combining supercomputers with quantum ones to make them even more powerful. This plan, called quantum-centric supercomputing (QCSC), was discussed at a recent tech conference.
Google is widely viewed as the closest contender, with its Willow system using superconducting qubits and demonstrating dramatic gains in error rates and scalability. Google is also targeting a commercially useful quantum system by 2029, pushing integration into cloud-based AI and simulations – while opening new opportunities in drug discovery, materials, and cybersecurity. Microsoft, by contrast, is invested in topological qubits – a technology that is less mature but aimed at long-term scalability and stability. The company’s Azure Quantum platform emphasizes cloud-based quantum access and hybrid workloads, as well as partnerships with hardware startups to broaden reach.
Analysts including Gartner and McKinsey expect the three giants to begin generating meaningful quantum computing revenue by the end of the decade, marking a pivotal moment for the nascent industry. Long-term commercial opportunities are vast, spanning logistics, materials science, cybersecurity, genetics and drug research, and many other fields. IBM CEO Arvind Krishna recently said that “quantum today is kind of where GPUs were in 2012,” implying that quantum is still early-stage but poised for rapid growth following hardware breakthroughs. If this is indeed the case, the next decade could see a quantum boom resembling the explosive AI race currently taking place.
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❖ BlackRock (BLK), through its subsidiary Global Infrastructure Partners, is leading a group of investors negotiating a $10.3 billion financing deal with Saudi Aramco, according to Reuters. The agreement would provide funding to the state-owned oil producer and highlights BlackRock’s push to expand its global infrastructure and energy footprint. While not immediately material to earnings, the deal underscores BLK’s role in large-scale international financing. JPMorgan (JPM) is reportedly also seeking involvement in the deal, highlighting the region’s growing attractiveness for U.S. financial giants.
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❖ GE Aerospace (GE) reached an important milestone, with its stock hitting an all-time high for the first time since the year 2000. The company, a result of General Electric’s 2024 split into three different firms, is benefitting from focusing on building aircraft engines. This business is booming thanks to strong demand for engines among commercial airlines.
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Portfolio Stocks Under Review
❖ We are keeping Cisco Systems (CSCO) under review due to the stock’s underperformance over the past month.
Cisco delivered fiscal Q4 that beat expectations in both revenue and EPS. AI infrastructure orders far exceeded targets, Splunk integration is boosting security offerings, and its legacy networking business posted double-digit growth even as capex declined. Guidance for FY26 shows total revenue growth of ~5% and adjusted EPS growth of ~6%. While headline growth is modest compared to high-growth peers, these results are impressive for a company many had written off just two years ago.
CSCO is actively reinventing itself – moving from a networking incumbent to a key player in enterprise AI infrastructure. Its scale – 35 million devices and 1 billion clients – and unified hardware, software, and cloud stack create a strong foundation for AI workloads. Innovations such as Cisco Data Fabric and Splunk Federated Search for Snowflake highlight its push toward unified AI-ready data architecture. Partnerships with Nvidia, Microsoft, and sovereign AI players like HUMAIN reinforce Cisco’s role in the global AI buildout. These innovations and partnerships could serve as important catalysts for the stock, and have led some industry analysts to declare CSCO a “must-hold stock” in the AI era.
Still, recent stock behavior shows investors remain cautious. CSCO fell nearly 9% in the week following earnings – even as guidance was solid – and, despite the subsequent rebound, has underperformed the S&P 500 since the release. Analyst sentiment remains constructive, as the consensus rating is “Buy” and the average price target implying an upside of about 15%. However, some firms want clearer disclosure of AI revenues and warn that much of the upside may already be priced in. Institutional flows remain supportive, while retail positioning is more hesitant.
We are inclined to hold CSCO for now, but want to see sentiment catch up to fundamentals – or fundamentals break out further – before removing our magnifying glass.
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❖ We are keeping MACOM Technology Solutions (MTSI) under review as we watch whether the stock’s rebound from its post-earnings dip can evolve into a sustained uptrend.
Fiscal Q3 2025 results confirmed robust execution – revenue and earnings came in slightly above expectations, supported by strength across MACOM’s divisions and surging demand for high-speed optics, GaN, and secure RF components. The Data Center and Telecom segments delivered solid growth, while Industrial & Defense posted record revenue. Total revenue reached an all-time high. Q4 guidance topped consensus, projecting sequential growth in Industrial & Defense and Data Center even as Telecom moderates.
MACOM’s strategic positioning remains a core strength. It benefits from accelerating AI infrastructure demand, owns a U.S.-based RF fab (RTP), and is expanding into high-frequency, high-power applications – with long-term EPS guidance above $4 on a $1 billion revenue base. Despite the early transfer of RTP ownership and some one-time capex noise, management expects gross margin to reach 59% as FY2026 concludes.
The market, however, has yet to fully reprice these fundamentals. Shares fell ~14% after earnings on August 7 before regaining most – but not all – of this loss. Sell-the-news dynamics, softer sector commentary, and broad market turbulence contributed to technical weakness and clouded near-term momentum.
Analysts, by contrast, remain overwhelmingly positive. At least 12 major firms – including JPMorgan, BofA, Evercore, and Stifel – raised price targets post-earnings, citing strong financial health and sustained revenue growth. Guidance for expansion through CY 2025-2026, along with capacity increases at RTP, underpins those views. The stock carries a “Strong Buy” rating with an average target implying more than 18% upside.
Evercore ISI recently highlighted MACOM as one of its top AI connectivity plays – viewing connectivity as a key bottleneck in AI infrastructure buildout and a major investment opportunity. That thesis was reinforced in September, when MACOM launched a new PCIe and CXL optical chipset extending its reach into data-center interconnects and addressing bandwidth and distance limitations in AI workloads. The company is also entering two product cycles extending well into 2026 – a second wave of demand for Active Copper Cables (ACC) and an early-stage ramp in Long Path Optics (LPO) – with its leadership in low-latency interconnects expected to drive market-share gains and customer wins. Strong demand across core end markets, including U.S. and European defense, data center, and telecom, is increasingly validated by institutional interest and fund inflows.
The upcoming European Microwave Week (EuMW 2025) on September 21-26 offers a significant platform to elevate MACOM’s technology profile in Europe – a major semiconductor and telecom hub – by showcasing strengths in GaN and GaAs processes. EuMW 2025 could act as a meaningful catalyst for the stock, particularly if it translates into new collaborations or backlog growth.
MTSI remains in a volatile patch – driven more by chip-sector sentiment than company-specific factors. With analyst confidence diverging from market action, patience is warranted. Shares are still below pre-earnings levels, and while the roadmap supports long-term upside, we prefer to wait until sentiment stabilizes and price action better reflects fundamentals. Should renewed strength confirm, we would revisit the position with a bias to maintain exposure.
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Portfolio Earnings and Dividend Calendar
❖ The Q2 2025 earnings season is over, and there are no reports scheduled until BlackRock (BLK) opens the Q3 season for Smart Portfolio companies on October 10.
❖ The ex-dividend date for Broadcom (AVGO) is September 22.
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New Buy: Modine (MOD)
Modine Manufacturing Company is a global leader in thermal management technologies, providing systems that control temperature, airflow, and energy efficiency in environments where reliability is simply a must. Its portfolio is anchored by data center cooling and advanced HVAC solutions – areas benefiting from secular demand as digital infrastructure expands and building standards evolve. Alongside these growth engines, Modine supports industrial heating and vehicle applications, extending its reach across multiple end markets. The company’s engineering depth and application-specific design allow it to tackle complex challenges – from scaling hyperscale computing facilities to improving indoor air quality and energy use in commercial buildings. With operations spanning North America, Europe, South America, and Asia, Modine is positioned at the intersection of infrastructure and efficiency, combining industrial capability with innovation in sectors driving long-term demand.
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Radiators and Racks
Founded in 1916, Modine began as a pioneer in heat transfer technology, supplying radiators for early automobiles and gradually expanding into thermal management solutions for a broad set of industries. Over the decades, it built a reputation for engineering reliability and global manufacturing reach. What has defined Modine’s recent trajectory, however, is a deliberate repositioning toward high-growth markets and advanced technologies.
In the past five years, this transformation has accelerated meaningfully. Recognizing the secular demand for digital infrastructure, MOD prioritized its Climate Solutions segment, investing heavily in data center cooling capacity across North America. New facilities in Dallas and Grenada, alongside the repurposing of existing plants, are designed to meet surging hyperscale and colocation needs. The company also began developing modular data center systems for rapid deployment, collaborating with strategic customers on next-generation cooling technologies.
Acquisitions have been a central driver. Since 2023, Modine has added multiple businesses to strengthen its HVAC Technologies portfolio, including Scott Springfield Manufacturing, AbsolutAire, L.B. White, and Climate by Design International. These moves expanded its reach into desiccant dehumidification, process air handling, and industrial heating, diversifying its product base and opening new distribution channels. Each acquisition has been integrated with a focus on synergy – both operationally and commercially – helping accelerate revenue growth and margin expansion in Climate Solutions.
Meanwhile, Modine has reshaped its Performance Technologies segment by exiting lower-margin product lines and reducing exposure to cyclical vehicular markets. These actions lowered costs and freed up resources to support faster-growing opportunities in Climate Solutions, while positioning the segment to benefit from stronger incremental margins when industry demand recovers.
Technology has also played a growing role. MOD has embedded advanced analytics and automation across its operations, improving efficiency and supporting the scale-up of complex data center projects. Early work with AI-driven design tools is enabling more efficient cooling layouts, helping customers reduce energy usage and improve resilience.
Together, these actions – targeted acquisitions, capacity expansion, disciplined restructuring, and technology integration – have reshaped Modine from a diversified manufacturer into a growth-focused powerhouse. By aligning itself with structural tailwinds in data centers and modern HVAC, while maintaining the industrial rigor that has defined its history, Modine has established a platform for sustainable growth and greater market share in the years ahead.
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The Business of Cool
Modine today operates through two major segments: Climate Solutions and Performance Technologies. Climate Solutions – which includes data center cooling, HVAC technologies, and heat transfer products – has become the dominant growth engine, representing roughly 60-65% of total revenue in recent quarters. Performance Technologies, which supplies vehicular, off-highway, and other thermal applications, contributes the remaining 35-40%.
Data center cooling is MOD’s most dynamic end market, with revenues more than doubling year-over-year and management targeting a $2 billion run-rate by fiscal 2028. The business is propelled by AI-driven compute density and the transition toward liquid-ready, modular architectures. Independent industry research estimates the global data center thermal management market at about $7.7 billion in 2023, expanding to nearly $17 billion by 2028 – an 18% CAGR. Modine has positioned itself ahead of this curve with new capacity in Dallas, further expansion in Grenada, and the repurposing of existing facilities. The company is also collaborating with hyperscale customers on modular systems designed for rapid deployment, reinforcing its role as a technology partner rather than a commodity supplier.
Beyond digital infrastructure, HVAC technologies are seeing solid growth, supported by building code changes, indoor air quality awareness, and demand for energy-efficient retrofits. This segment represents a vast and durable opportunity, as the global HVAC market is valued at well over $300 billion and is projected to grow steadily in the mid-single digits through the next decade. In North America, commercial HVAC demand is expected to expand meaningfully through 2030, efficiency mandates, indoor air quality initiatives, and replacement cycles. Recent acquisitions have further extended Modine’s reach into industrial heating, desiccant dehumidification, and process air handling, positioning the company to capture share in these adjacent markets.
In Performance Technologies, Modine has moved to exit lower-margin vehicular lines, while tightening cost controls. The company has reduced exposure to heavy-duty and on-highway markets that are both cyclical and margin-dilutive, freeing resources for areas where it can sustain a competitive edge. While demand softness remains, the streamlined portfolio should allow stronger incremental margins when market conditions improve.
Policy trends add another layer of momentum. The One Big Beautiful Bill fiscal package restored 100% bonus depreciation, reinstated immediate R&D expensing, and enhanced incentives for domestic manufacturing. These measures directly reduce capital costs and improve after-tax returns for companies like Modine that are scaling U.S. production. Broader reshoring and re-industrialization trends, combined with government support for data centers and advanced manufacturing, further strengthen the demand backdrop.
By aligning itself with these structural shifts – digital infrastructure buildout, higher HVAC standards, and supportive industrial policy – Modine has positioned itself to extend market share and sustain growth across its key end markets.
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Climate for Gains
Modine opened fiscal 2026 with a solid first quarter, delivering an across-the-board beat on analyst expectations. Revenue rose 3% YoY to $682.8 million, compared with consensus forecasts of around $654 million. Adjusted EPS came in at $1.06, up 2% from a year ago and comfortably above analyst estimates of just under $0.95. Net earnings increased 8% to $51.7 million, reflecting operating discipline even as the company carried higher costs tied to acquisitions and capacity preparations. Adjusted EBITDA edged slightly higher to $101.4 million with a margin of 14.9%, down 40 basis points, while operating margin held at 11.1%. Free cash flow, however, was muted at just $0.2 million, versus $13.7 million a year earlier, as Modine built inventory and invested ahead of the expected second-half ramp.
Segment performance continued to illustrate the company’s transformation. Climate Solutions revenue increased 11% year over year, supported by strong demand in data center cooling and HVAC, and delivered an adjusted EBITDA margin of about 20%. Performance Technologies, by contrast, declined 8% amid ongoing softness in vehicular markets and deliberate exits from lower-margin product lines. Management emphasized that the first half of the year carries heavier costs as it builds capacity and inventories for major data center projects, but expects a meaningful acceleration in the back half. Climate Solutions sales are projected to soar more than 80% in the second half of FY26, while the integration of L.B. White is expected to add a business with 15-20% margins that strengthens the segment’s overall profitability profile. Performance Technologies is also positioned to recover, with nearly 100 basis points of margin improvement expected through cost reductions, partial recovery of tariff and metal costs, and incremental volume gains.
Reflecting this confidence, Modine raised its full-year guidance. The company now expects revenue growth of 10-15% for fiscal 2026, up from 2-10% previously, with adjusted EBITDA projected at $440-470 million versus an earlier range of $420-450 million. Data center sales are expected to climb more than 45% this year, supported by the $100 million U.S. capacity expansion that is set to come online in the second half. While FCF is expected to remain pressured in the near term by elevated capital spending, management anticipates improvement later in the year as higher volumes and stronger margins take hold.
Analysts generally view the guidance as achievable and even somewhat conservative, with consensus clustering around $2.7-2.8 billion in full-year revenue and roughly $4.50 in EPS, implying about 7% YoY revenue growth at the midpoint and roughly 9% YoY EPS growth. Importantly, Modine has built a track record of consistent consensus beats, with EPS coming in above projections since FQ3 2022 and revenue outperforming expectations through fiscal 2025 and again in the latest quarter. This cadence, combined with raised guidance, suggests a continued trajectory of profitability and improved cash generation as fiscal 2026 progresses.
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Priced to Chill
Modine’s peer group spans a diverse set of industrial and HVAC specialists – including Comfort Systems USA, a major provider of building and industrial climate solutions, SPX Technologies, a diversified thermal and detection systems manufacturer, AAON, a focused HVAC equipment producer, and A. O. Smith, a leader in water heating and treatment systems with adjacent HVAC exposure.
While moving broadly along the trajectory of the S&P 500, MOD and its peers have displayed vast differences in stock performances this year. These stem from various factors, including both business lines and market cap size – with Comfort Systems benefiting from exposure to large-cap ETF flows and its perception as the most direct “picks and shovels” play in tech infrastructure buildout. Meanwhile, smaller peers with weaker finances underperformed, as did those with narrower moats and less exposure to the data-center theme or other tech-driven narratives. Overall, Modine’s stock is the second runner-up in the group with a year-to-date gain of nearly 32%.
Despite this strong showing, the stock remains moderately valued compared to peers, trading below the group’s average on trailing non-GAAP P/E, EV/EBITDA, Price/Sales, and Price/Cash Flow, while displaying roughly in-line trailing GAAP P/E and EV/Sales. Meanwhile, MOD’s forward-looking metrics also look attractive. While the company’s expected revenue and earnings growth is the second-highest in the group, its forward non-GAAP and GAAP P/E ratios, as well as EV/Sales and EV/EBITDA, sit below peer averages. The clearest disconnect between market appraisal and earnings potential shows up in Modine’s forward non-GAAP PEG ratio of 1.48, the lowest among major peers except Comfort Systems, highlighting the firm’s growth as attractively valued.
Modine’s mid-cap status and historical attribution to the Consumer Discretionary industry (because of its automotive-cooling roots) result in relatively light analyst coverage, with only five firms following the stock. Of those, just two have published price targets – and only one, from KeyBanc Capital, has been updated since the latest earnings release to reflect raised guidance. Still, the “Strong Buy” rated stock has almost outrun the target, as Modine gears up for much stronger growth following the accretive acquisitions and the additional $100 million investment in data-center cooling capacity.
Meanwhile, institutional investors continue raising their stakes, indicating confidence in Modine’s future. With EPS, revenue, and EBITDA expected to grow faster than industry averages over the next few years, MOD appears undervalued relative to its intrinsic potential. Strong operating margins and an above-industry ROE reinforce the argument for continued share price appreciation.
Beyond that, MOD also supports shareholder value through discretionary share repurchases. In March this year, its board authorized a new $100 million buyback capacity to be used at the company’s discretion. Thus far, Modine has only repurchased about $18 million worth of shares, with all of the buybacks performed from March to June, when the “tariff tantrum” depressed stock prices, including MOD. As the stock surged on improved market sentiment, the company prudently withheld buybacks.
This combination of under-the-radar status, disciplined capital allocation, and structural exposure to data centers and advanced HVAC leaves Modine in an unusual position: priced more like a cyclical auto supplier, yet operating more like a growth-focused industrial. This gap between valuation and business mix will be tested as the data center expansion feeds through results in the coming quarters.
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Investing Takeaway
Modine Manufacturing offers investors a blend of structural growth, disciplined execution, and attractive valuation. The company has steadily repositioned its portfolio toward higher-margin, higher-growth markets such as data center cooling and advanced HVAC, while exiting more cyclical and lower-return product lines. This shift, supported by selective acquisitions and capacity expansion, has deepened its competitive position and broadened its addressable market. At the same time, Modine maintains a balanced approach to capital allocation, pairing reinvestment in growth with opportunistic share repurchases. The result is a business with improving profitability, durable end-market demand, and a valuation that continues to lag its earnings potential. For investors seeking exposure to industrial technologies linked to digital infrastructure and energy efficiency, Modine presents a compelling case for sustained outperformance.
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New Sell: LPL Financial (LPLA)
LPL Financial was added in April as part of the portfolio’s financials exposure – a profitable, lower-beta trade meant to complement higher-growth, more cyclical holdings. The company’s fundamentals remain strong: LPL is the largest independent broker-dealer in the U.S., with an expanding advisor network, recurring revenue streams, and a platform strategy that has steadily gained share from wirehouses and banks. Recent results underscored that strength, with Q2 EPS ahead of estimates and revenue up strongly year-over-year. Institutional flows remain supportive, and new wins such as the $700 million migration from Skyward Financial reinforce the platform’s appeal.
However, the stock has not behaved as intended. Instead of providing steady, profitable exposure, LPLA has displayed pronounced volatility, dropping nearly 4% in a single session on Monday and sliding well off July’s peak of about $400. Despite a beta of just 0.66, the shares have proven surprisingly choppy, underperforming both the S&P 500 and peers like Interactive Brokers (IBKR), which has delivered outsized returns despite its own volatility. LPLA has lagged the S&P 500 not only over the holding period, but also in the past one and three months, highlighting the consistency of its underperformance. That divergence makes holding LPLA less compelling: it is not boosting returns, nor is it reducing portfolio swings.
The analyst backdrop reflects this split. Barclays kept a “Buy” but trimmed its target to $460, TD Cowen cut to “Hold” with a $403 target, while Raymond James rates the stock a “Sell”. Bulls – such as Goldman Sachs – continue to highlight margin expansion and platform leverage, but skeptics point to risks from fee compression, lower interest rates, and valuation multiples already pricing in much of the growth story. Recent trading has underscored this sensitivity, with LPLA considerably underperforming its peers over the past several weeks.
This exit is not about LPLA’s underlying business, which remains well run and strategically positioned. It is about the mismatch between what we expected – steady profitability and diversification – and what we have experienced, volatility without compensating returns. We will revisit LPLA if the drivers of this instability dissipate or if it demonstrates the kind of sustained upside that justifies the swings, as IBKR has consistently shown. For now, reallocating to stronger opportunities is the prudent step.
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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.
Markets have been volatile, but our Club’s ranks remained unchanged, still holding 13 stocks: AVGO, GE, ORCL, ANET, EME, HWM, TSM, APH, IBKR, PH, GOOGL, UBER, and CRWD.
The first contender for the Club’s entry is still BK with a 27.65% gain since its purchase six months ago. Will it gain the rite of passage, or will another stock outrun it to the finish line?
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