Smart Dividend Portfolio Edition #67: Industrial Strength
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Dear Investor,
Welcome to the 67th edition of TipRanks’ Smart Dividend Portfolio & Newsletter.
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Market-Moving News: Jun 30, 2025
Stocks surged, with the S&P 500 (SPX) and the tech-heavy Nasdaq-100 (NDX) reaching new records, rising 3.44% and 4.20%, respectively, for the week. After bouncing roughly 24% and 30% in less than three months, these indexes have now officially clocked in a V-shaped recovery. Meanwhile, the Dow Jones Industrial Average (DJIA) ended the weekly session with a gain of 3.82%, bringing its recovery from April’s low to 19.7% and closing less than 3% below its all-time high.
Stocks hit these milestones thanks to strong investor enthusiasm for tech shares, particularly those in the AI sector, and rising hopes for a Fed rate cut later this year. The White House’s announcement about signing a trade deal with China and the reveal of imminent plans to reach agreements with 10 major trading partners further jolted the markets. These developments overshadowed a dose of negativity from President Trump’s abrupt termination of trade talks with Canada over its proposed digital services tax.
The key obstacle resolved with China was the agreement over issues relating to the shipments of rare earth minerals. China controls over 60-80% of global supplies of rare earths, which are critically important to tech and industrial companies, especially those in the semiconductors, consumer electronics, EV, and defense sectors. The agreement has removed a major chokepoint risk for U.S. tech and manufacturing firms, contributing to the rally.
Adding to investor optimism, Press Secretary Karoline Leavitt suggested that President Donald Trump could extend his 90-day reciprocal tariff pause beyond the deadline coming early next month, as the White House advances its global trade reshaping agenda.
Moreover, some good news also appeared on the macroeconomic front – particularly where it really matters for stocks – in forward-looking indicators. Although the Fed’s preferred inflation gauge – core PCE – showed that price increases accelerated in May, the June consumer sentiment index jumped to a four-month high, as inflation expectations of U.S. households significantly improved.
This mixed bag of data hasn’t simplified the Fed’s path to a rate-cut decision, with the governors seemingly in disagreement. Last week, Fed Chair Jerome Powell said he expects to see a pickup in inflation this summer and judged it best to continue with the “wait and see” approach. Conversely, his colleagues Michelle Bowman and Chris Waller said they now see the central bank cutting rates as soon as July. Despite the unexpected resilience, the economy continues to gradually decelerate, with expenditures displaying weakness and unemployment expected to increase.
U.S. consumers now appear to believe that their worst fears may not come to pass, as many of the trade uncertainties have already been taken off the table, and many more are apparently on their way to being solved. Meanwhile, Israel’s and America’s handling of Iran’s threat removed a notable source of potential danger that Middle East tensions could escalate to a whole new level, which could have grave global implications. As these risks subsided, oil prices dropped, and relieved stock-market participants went all-in on risk trades.
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This Week’s Quality Dividend Stock Idea
Caterpillar (CAT) is a global leader in manufacturing construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. The company delivers innovative, durable products and services across industries, including construction, mining, energy, and transportation. With a robust portfolio of advanced machinery and solutions, Caterpillar supports customers worldwide, enhancing productivity and sustainability. Driven by engineering excellence and a century-long legacy, the company continues to grow through technological innovation, strategic acquisitions, and global market expansion.
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Industrial Roots
Caterpillar traces its roots back to 1925, when Holt Manufacturing and C.L. Best Tractor Co. merged to form the company that pioneered track-type tractors. From its early days, Caterpillar played a vital role in global infrastructure development, supplying machinery for major construction projects and postwar reconstruction around the world. In 1986, the company formally reorganized as Caterpillar Inc., expanding its footprint across construction, mining, energy, and transportation markets.
Throughout the 20th century, Caterpillar’s product diversification into areas such as diesel-electric locomotives, turbines, and industrial engines helped stabilize earnings across economic cycles and solidified its reputation as an industrial powerhouse. By the early 2000s, Caterpillar had grown into a globally recognized brand synonymous with heavy equipment and durability.
Since 2017, Caterpillar has pursued an enterprise strategy centered on four key pillars: expanding its product offerings, driving operational excellence, growing its services business, and advancing sustainability. This strategy has enhanced the company’s earnings power and global leadership while improving resilience across commodity and economic cycles.
A defining moment came in 2011 with the acquisition of Bucyrus International, which significantly broadened Caterpillar’s mining portfolio and positioned it as a full-line provider of surface and underground mining equipment. In the years since, Caterpillar has made strategic investments in digital fleet management, autonomous mining trucks, and equipment electrification to fuel long-term growth.
The company’s shift toward a service-oriented model has also bolstered profitability. Leveraging its vast global installed base, Caterpillar has built a strong recurring revenue stream from parts, maintenance, and digital services, which now account for more than 50% of the Machinery, Energy & Transportation (ME&T) segment’s profits.
Today, Caterpillar operates in over 180 countries, serving mission-critical industries across infrastructure, mining, energy, and transportation. With a market capitalization of nearly $181 billion, Caterpillar ranks #64 on the Fortune 500 list and reported trailing twelve-month revenues of $63.3 billion, underscoring its scale, resilience, and continued relevance in the global industrial landscape.
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Gear Shift
Over the past decade, Caterpillar has strategically pursued a series of targeted acquisitions to advance its long-term growth agenda, with a clear focus on digital transformation, expanding services, and sustainability. These deals have strengthened the company’s market leadership, diversified its offerings, and supported the shift toward more resilient, recurring revenue streams.
Caterpillar’s most transformative acquisition came in 2011 with the $8.8 billion purchase of Bucyrus International. This landmark deal significantly expanded CAT’s mining capabilities, enabling it to offer a full suite of surface and underground mining equipment. It positioned the company as a comprehensive mining solutions provider, deepening customer relationships and boosting earnings leverage during commodity upcycles.
In recent years, Caterpillar has shifted to smaller, high-impact acquisitions aimed at advancing autonomy, connectivity, and the energy transition. In 2020, CAT acquired select assets and hired employees from Marble Robot, a startup specializing in autonomous robotics, enhancing its capabilities in automation and next-generation machine control. That same year, it also completed the $405 million acquisition of The Weir Group’s Oil & Gas division, bolstering its portfolio with specialized pumping and wellhead equipment in energy markets.
Caterpillar continued to expand its mining technology footprint in 2021 through the acquisition of Minetec, an Australian company offering high-precision tracking and data communications networks, for $14 million. The same year, CAT acquired CarbonPoint Solutions, gaining access to post-combustion carbon capture technology that aligns with its sustainability goals and supports customers’ emissions reduction efforts.
In 2022, the acquisition of Tangent Energy Solutions added proprietary software that optimizes distributed energy assets, supporting Caterpillar’s growing energy-as-a-service business and providing new avenues for recurring revenue.
Together, these acquisitions reflect Caterpillar’s disciplined capital deployment and strategic evolution. By enhancing its offerings in autonomy, services, and sustainability, the company has positioned itself to deliver more stable earnings and long-term value across economic and commodity cycles.
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Segmented Strength
Caterpillar, a global leader in heavy machinery and industrial engines, supports key sectors such as construction, mining, energy, and transportation. Its business operates through four core segments: Construction Industries, Resource Industries, Energy & Transportation, and Financial Products. The Machinery, Energy & Transportation (ME&T) segment – encompassing the first three – accounted for approximately 94% of Q1 revenue, with products sold via a vast dealer network and directly to major clients.
The Construction Industries segment serves infrastructure and building markets, selling into general construction, rental, quarrying, and small-scale mining. In Q1 2025, sales declined 19% YoY to $5.2 billion, impacted by lower dealer inventory and unfavorable pricing. Segment profit dropped 42% to $1.0 billion, though margins held up due to lower manufacturing and SG&A costs. North America saw the sharpest decline, followed by Latin America, EAME, and Asia/Pacific. Yet, global end-user demand rose 3%, supported by residential construction and certain African and Middle Eastern markets. Q2 sales are expected to decline further, with pricing and tariff-related pressure partially offset by modest volume gains.
The Resource Industries segment focuses on mining and heavy construction equipment. Q1 sales fell 10% to $2.88 billion, slightly ahead of expectations due to strong off-highway truck demand. Segment profit declined 18% to $599 million, driven by lower volume and pricing, though margins remained healthy at 20.8%. While end-user demand dropped by 10%, strong orders for large mining trucks and autonomous solutions provided support. Q2 sales are projected to decline again, with tariffs estimated to drive about 25% of cost pressure.
Energy & Transportation – Caterpillar’s largest Q1 revenue segment at $6.6 billion (46.1% of total) – serves oil & gas, power generation, marine, rail, and industrial customers. Sales fell 2% due to delivery delays and currency impacts, but Power Generation offset weakness elsewhere with 23% growth. Sales are expected to rise in Q2, particularly in Power Generation and Oil & Gas (Solar Turbines), though tariffs are likely to drive $250M – $350M in Q2 cost headwinds. Demand for large power systems – especially backup generators for data centers – is strong in 2025, helping Caterpillar shift capacity from slower oil & gas markets toward higher-growth areas. Interest in Solar Turbines’ Titan 350 remains robust, reinforcing long-term momentum. Despite broader concerns about data center capex, orders and backlog continue to grow, highlighting this segment’s rising contribution, despite broader market headwinds.
The Financial Products segment, through Cat Financial, supports equipment sales by financing dealers and end-users. In Q1, the segment posted $1.0 billion in revenue (up 2%), but profit fell 27% to $215 million due to the lack of a prior-year insurance settlement and higher credit loss provisions. Still, customer credit quality remains solid: the past-due rate improved by 20 basis points YoY to 1.58%, its lowest Q1 level since 2006. The credit loss allowance held steady at 0.95%, and both retail applications and new business volume increased, reflecting strong underlying demand. Despite the decline in operating profit, the segment continues to support equipment demand through credit availability and remains an integral part of Caterpillar’s service ecosystem.
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Industrial Resolve
While segment performance has been mixed amid shifting market dynamics, Caterpillar’s ability to maintain profitability and navigate external pressures reflects the strength of its operational discipline and evolving business model. The company’s growing services business, spanning parts, maintenance, digital offerings, and financing, continues to deliver recurring revenue and cushion the impact of cyclical swings in equipment demand. Its global installed base supports continued expansion in aftermarket services, which now play a larger role in generating free cash flow.
Caterpillar’s adjusted operating margin of 18.3% in Q1 remains strong despite a soft sales environment, supported by its Operating & Execution (O&E) model focused on cost control and efficiency. A growing services business and broader end-market exposure have helped stabilize earnings, with recurring revenue from parts, maintenance, and digital solutions. Given this more resilient business mix, Caterpillar sees a return to historically low margins – seen during the volatile 2010–2016 period – as unlikely barring a severe global downturn. Leadership transition plans are also in motion, with CEO Jim Umpleby stepping into the Executive Chairman role, and COO Joseph Creed assuming the CEO position, ensuring continuity in strategic vision.
Caterpillar is actively managing expected Q2 tariff-related costs of $250–350 million through short-term actions – reducing discretionary spending and drawing down dealer inventories. Longer-term, the company is working to shift its supply chain away from China, though this requires time and clarity on how long tariffs will remain in place. With over half of its tariff exposure tied to Chinese imports, the recent U.S.-China trade agreement could reduce future pressure, but timing and scope remain uncertain. Caterpillar has started sourcing from alternative regions like Brazil, but these efforts are still in progress and not yet reflected in its financial guidance. Due to ongoing uncertainty, the company has not provided a full-year impact estimate but continues to monitor the situation and adjust its strategy as needed.
In the second half of 2025, Caterpillar does not expect price increases to fully offset the impact of tariffs. However, it maintains some pricing flexibility within its existing backlog, which could allow for adjustments if market conditions change. Notably, there’s no evidence of widespread pre-buying ahead of potential price hikes, suggesting the growing backlog reflects real customer demand – particularly in Energy & Transportation and Resource Industries, where orders are linked to infrastructure and mining projects.
In Construction Industries, stronger-than-expected demand has enabled dealers to move inventory quickly, signaling healthy market activity. Unlike the inventory drawdowns of 2024, the second half of 2025 is expected to bring more balanced inventory levels, supporting stable production and sales. Dealer sentiment remains cautiously optimistic, buoyed by ongoing infrastructure spending and rising rental demand, contributing to a steady outlook despite broader economic uncertainty.
Ultimately, Caterpillar’s diversified end-market exposure, record backlog, strong financial health, and growing service portfolio provide a stable foundation. While certain segments face near-term headwinds, the company’s strategic adaptability and operational discipline position it to weather 2025’s uncertainties and maintain long-term resilience.
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Resilient Performance
Caterpillar maintains a strong financial foundation, supported by its global leadership in heavy equipment, a robust services portfolio, and disciplined capital management. Over the past three years, Caterpillar’s revenues have increased at a CAGR of 6.3%, while its EPS has grown by 19.8% – driven by resilient end-user demand, effective pricing, cost control, and shareholder-focused strategies. Even as sales declined in 2024 amid softer demand, Caterpillar achieved record EPS, highlighting the strength of its operating model.
In Q1 2025, total sales and revenues fell 9.8% year-over-year to $14.25 billion, missing consensus estimates. The decline was largely expected following several years of elevated equipment demand, though service revenues remained strong. Adjusted EPS came in at $4.25, below Street expectations of $4.34, impacted by lower sales volumes and unfavorable pricing.
Operating cash flow for the quarter totaled $1.3 billion, down from $2.05 billion a year earlier, due to working capital timing and higher tax payments. Free cash flow for the ME&T segment was $200 million, a $1.1 billion decline year-over-year, reflecting lower profits and $700 million in capital expenditures. Despite the dip, Caterpillar continues to generate strong cash flow, supported by a robust order backlog.
A core goal of Caterpillar’s capital strategy is to return nearly all ME&T free cash flow to shareholders through dividends and share repurchases. The company’s balance sheet remains healthy, even as its overall debt-to-equity ratio stands at 2.14x, above the industry median – primarily due to its financial services arm. In contrast, ME&T’s EBITDA leverage stood at a conservative 0.6x at the end of FY24, reflecting a disciplined debt profile. Fitch notes that leverage may temporarily rise during downcycles but is unlikely to exceed the mid-2x range, given Caterpillar’s flexibility to adjust discretionary spending.
The company maintains strong investment-grade credit ratings of “A” from S&P and “A+” from Fitch, reflecting its sound balance sheet and diversified earnings base. With expanding service revenues and prudent financial management, Caterpillar is well-positioned for sustained profit growth and robust free cash flow.
Its $35 billion backlog at the end of Q1, along with strong margins in areas like large engines and Solar Turbines, adds to its resilience in a volatile environment. Caterpillar plans to invest about $2.5 billion in capex in 2025, with a significant focus on expanding capacity for high-demand large engines used in data centers, supporting long-term growth in Power Generation.
Looking ahead to Q2 2025, sales are expected to be flat year-over-year. Strength in Energy & Transportation, particularly Power Generation, is likely to offset continued weakness in Construction and Resource Industries. However, adjusted operating margins are projected to decline due to competitive pricing and higher SG&A and R&D costs.
Tariffs remain a notable challenge, with Construction Industries expected to absorb about half the burden, while Resource Industries and Energy & Transportation will share the remainder. For FY25, Caterpillar has outlined two scenarios. Without tariffs, sales are expected to remain flat, with margins and ME&T free cash flow reaching the upper half of the company’s $5–10 billion target range. Under a softer economic outlook and full tariff impact, sales may decline slightly, but key financial metrics are expected to remain within target ranges, supported by the company’s backlog, service revenue, and end-market diversity. The outlook assumes easing pricing pressure in the second half of the year, but dealer inventories will remain steady.
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Dividend Drive
Caterpillar continues to prioritize shareholder value through a disciplined capital return strategy that blends consistent dividend growth with active share repurchases. This approach is supported by strong free cash flow, a resilient earnings base, and an investment-grade balance sheet.
Since initiating dividends in 1933, Caterpillar has built a remarkable track record. It is now in its 31st consecutive year of annual dividend increases – earning its place among the Dividend Aristocrats. Over the past decade, the company has grown its dividend at a 7.3% annual rate. In Q1 2025, Caterpillar paid $674 million in dividends and announced a 7% increase in its quarterly payout to $1.51 per share, payable in August. Based on adjusted earnings, Caterpillar returns 27% to shareholders and offers a dividend yield of 1.48%, above the industrial sector average of 1.33%.
This dividend growth is underpinned by the stability of Caterpillar’s aftermarket services business – which contributes nearly half of ME&T profitability – as well as resilient equipment sales and long-term contributions from its financial services arm.
In addition to dividends, Caterpillar enhances shareholder value through strategic share repurchases. In Q1 2025, it repurchased 7.5 million shares for $2.8 billion through a combination of open-market purchases and an accelerated share repurchase (ASR) agreement. The company also advanced $3 billion under new ASR agreements, with final settlement expected in Q4 2025.
Caterpillar’s share repurchase program expanded significantly following a $15 billion authorization in 2022, which has since been fully utilized. In June 2024, the Board approved a new $20 billion buyback plan – of which $16.5 billion remained as of March 31, 2025, after $3.66 billion in early 2025 repurchases.
Despite recent macroeconomic headwinds and weaker Q1 results, Caterpillar shares have climbed nearly 14% over the past year. A more positive outlook for the second half of 2025 – driven by strong demand for power generation and capacity expansion – has kept the stock near historic highs. Despite the gains, CAT trades at a small discount to the Industrial sector median and slightly below its five-year average P/E, placing it in a moderate valuation range compared to its peers in the industry.
Analysts remain optimistic, with some forecasting up to 11% upside from current levels. This outlook is fueled by Caterpillar’s expansion in high-growth areas tied to rising energy demand, particularly from data centers, distributed power, and natural gas.
The company’s strong return metrics further support this optimism. Caterpillar ranks in the top 10% of the industry for return on equity (ROE) and return on assets (ROA), and in the top 15% for return on invested capital (ROIC), underscoring its operational strength and capital efficiency.
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Investing Takeaway
Caterpillar offers a compelling case for income-focused investors seeking both stability and growth. With a 31-year track record of dividend increases, the company has firmly established itself among the Dividend Aristocrats. Its consistent and growing payout, underpinned by resilient cash flows from services and equipment sales, reflects a disciplined capital return approach. In addition to dividends, Caterpillar actively returns capital through robust share repurchases, supported by a large buyback authorization and strong free cash flow. The company’s commitment to returning nearly all ME&T free cash flow to shareholders, while maintaining investment-grade credit ratings, highlights its shareholder-first philosophy. Despite near-term headwinds, Caterpillar’s long-term outlook remains strong, buoyed by a record backlog, growing demand in power generation, and a balanced portfolio. With shares still trading below sector averages, the stock presents an attractive opportunity for investors seeking reliable income and potential upside through capital appreciation.
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Dividend Investor Portfolio
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Portfolio News
▣ Amgen (AMGN) announced that its experimental weight-loss drug, MariTide, led to an average 20% weight loss over 52 weeks in a mid-stage trial involving people with obesity but without Type 2 diabetes. Participants with both obesity and Type 2 diabetes lost about 17% of their weight, compared to just 1.4% in the placebo group. The company noted that weight loss had not plateaued by week 52, indicating potential for further reductions. No new safety issues emerged, and MariTide’s side effects, mainly mild to moderate gastrointestinal symptoms, were consistent with those of other GLP-1 drugs.
▣ BlackRock (BLK) and Abu Dhabi’s Mubadala Investment have agreed to wind down their Asian private credit partnership, which focused on China and Indonesia, due to difficulties sourcing suitable deals, according to a media report on Friday. Formed in 2023, the partnership required Mubadala to match BlackRock’s capital commitments. However, limited capital was deployed, as finding deals in China that met the vehicle’s mid-teens return target proved difficult.
Separately, BlackRock plans to introduce private equity and credit into its retirement funds by mid-2026, signaling a broader shift toward alternative assets in mainstream portfolios. The effort begins with offerings in a new target-date fund from Great Gray Trust, blending BlackRock’s index-based equity and fixed income strategies with private equity exposure. Additionally, BlackRock has launched a hedged government bond active ETF, providing access to a globally diversified portfolio of government bonds.
▣ Bank of Nova Scotia’s (BNS) ex-dividend date is set for July 2, and the dividend is scheduled to be paid on July 29.
▣ JPMorgan Chase’s (JPM) ex-dividend date is set for July 3, and the dividend is scheduled to be paid on July 31. In another development, JPM’s asset management arm has launched the JPMorgan Active High Yield ETF (JPHY), supported by a $2 billion investment from a major institutional client. This marks the largest active ETF launch to date and reinforces J.P. Morgan’s leadership in active fixed income. JPHY will invest at least 80% of its assets in below-investment-grade bonds and other debt securities, aiming to generate high current income. Separately, the Federal Reserve has stated that all 22 major banks, including JPMorgan, passed the stress test, maintaining capital above the minimum CET1 requirement despite projected losses exceeding $550 billion in a hypothetical recession.
▣ Kroger (KR) has increased its quarterly dividend by 9%, from $0.32 to $0.35 per share, bringing the annual payout to $1.40 per share.
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Recent Trades
None at the moment, although we are considering adding a stock to our portfolio when the market conditions allow for an attractive entry point. Stay tuned.
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Portfolio Attributes
| Dividend Portfolio Yield |
Expected Dividend Growth | Expected Annual Income |
| 3.98% | +6.67% | $6,035.50 |
| Yield-on-Cost Adjusted, Weighted |
Average Analyst 12-Month Growth Outlook | 10K Per Stock at the Time of Purchase |
Current Portfolio
| Name | EX-Dividend Date | Payment Date | Yield on Cost | Annual DPS |
| Automatic Data Processing (ADP) | Sep 16, 2025 | Oct 02, 2025 | 2.46% | $6.16 |
| Amgen (AMGN) | Aug 18, 2025 | Sep 09, 2025 | 3.27% | $9.52 |
| BlackRock (BLK) | Sep 09, 2025 | Sep 23, 2025 | 2.61% | $20.84 |
| Bank of Nova Scotia (BNS) | Oct 02, 2025 | Oct 29, 2025 | 5.98% | $3.2 |
| EOG Resources (EOG) | Jul 17, 2025 | Jul 31, 2025 | 3.06% | $3.92 |
| ExxonMobil (XOM) | Aug 15, 2025 | Sep 10, 2025 | 3.64% | $3.96 |
| IBM (IBM) | Aug 11, 2025 | Sep 10, 2025 | 3.14% | $6.72 |
| JPMorgan Chase (JPM) | Oct 07, 2025 | Oct 31, 2025 | 3.2% | $5.60 |
| Kroger (KR) | Aug 15, 2025 | Sep 01, 2025 | 3.08% | $1.40 |
| LyondellBasell (LYB) | Aug 26, 2025 | Sep 03, 2025 | 5.74% | $5.48 |
| PepsiCo (PEP) | Sep 09, 2025 | Sep 30, 2025 | 3.64% | $5.44 |
| Philip Morris (PM) | Sep 25, 2025 | Jul 17, 2025 | 6.06% | $5.40 |
| Qualcomm (QCOM) | Sep 05, 2025 | Oct 09, 2025 | 2.36% | $3.56 |
| VICI Properties (VICI) | Sep 18, 2025 | Oct 06, 2025 | 5.22% | $1.73 |
| Verizon (VZ) | Jul 10, 2025 | Aug 05, 2025 | 6.09% | $2.71 |
NameEX-Dividend DatePayment DateYield on Cost Annual DPS
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Click here for more stock market analysis from TipRanks Macro & Markets research analyst Yulia Vaiman
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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.
