Strength Aggregation

In this edition of the Smart Investor newsletter, we examine a leading global IT solutions aggregator.  But first, let us delve into the latest Portfolio news and updates.


Portfolio Stock Updates


First Quarter Winners and Losers:

❖ Super Micro Computer (SMCI) was the S&P 500’s best performer during the first quarter, racking up a surge of over 260%. The company’s stock joined the index on March 18th. It was also by far the best performer in the Smart Investor Portfolio in Q1. Since we added it to our Portfolio, it has shot up by 297%.

❖ The second-best Portfolio performer was EMCOR Group (EME), an industrial company we purchased last November. This strong-conviction buy has risen almost 65% in Q1 2024, and 73% since we purchased it.

❖ The third place in terms of Q1 performance is taken by Dell Technologies (DELL), which we bought last week. The stock has registered a three-month increase of over 50%.

❖ The worst quarterly performer in the Smart Investor Portfolio was Accenture (ACN). The consulting giant registered a decline of 2.2% after cutting its FY24 revenue forecast due to tightening customer budgets. However, the stock is up over 10% since we added it to the Portfolio in November.

❖ Second from the bottom in terms of Portfolio stock performance was Vertex Pharmaceuticals (VRTX), with a quarterly increase of 1.7%. Our Portfolio holding of the stock is up over 17% since purchase in August.

❖ The third-worst Portfolio performer was Jabil (JBL) with a modest increase of 4.5% over the quarter. However, the stock has added over 23% since we bought it for Smart Investor Portfolio in July.


Smart Investor Companies News:

❖ General Dynamics (GD): The Federal Aviation Administration (FAA) has certified the company’s new flagship G700 aircraft, paving the way for customer deliveries of the ultra-long-range business jet.

❖ FLEETCOR Technologies has rebranded as “Corpay, Inc.” to better reflect the company’s current portfolio of corporate payment solutions. This name change took effect on March 25, 2024, when the company’s stock began trading on the NYSE under the new ticker symbol CPAY.


Portfolio Earnings and Dividend Calendar

❖ The Q4 2023 earnings season for Smart Investor Portfolio companies has ended, with no earnings releases scheduled until mid-April.

❖ The ex-dividend date for Oracle (ORCL) is April 9th, and for Accenture (ACN) it is April 10th.



New Buy: TD SYNNEX Corporation (SNX)

TD SYNNEX Corp. is a leading global distributor and solutions aggregator for the information technology (IT) ecosystem, providing information technology products and business process services. SNX provides a broad range of product lines, logistic capabilities, and value-added services that enable technology manufacturers and resellers to deploy IT solutions.


Combination of Strengths

TD SYNNEX Corporation was formed in September 2021 by a merger of IT distributors Synnex (public since 1983) and Tech Data (privately held). As a result of the merger, the combined entity became the world’s largest distributor of IT-related technology products, services, and solutions.

Large size and wide industry and geographical reach have been instrumental in allowing TD SYNNEX to gain a large market share in a highly competitive IT distribution industry. As a result, the company is now one of the leading IT distributors in both North America and Europe, as measured by market share. TD SYNNEX derives ~55% of its revenues from the Americas, ~35% from Europe, and the rest from Asia-Pacific and Japan.

With a market capitalization of almost $10 billion and annual revenues of $60 billion, TD SYNNEX is ranked #64 on the Fortune 500 list of the largest U.S. companies by revenue.

Headquartered in Clearwater, Florida, and Fremont, California, TD SYNNEX serves more than 150,000 customers in 100+ countries, providing them with compelling IT products, services and solutions from over 2,500 technology vendors such as Microsoft, Dell, Apple, Jabra, Nvidia, Fortinet, Lenovo, AWS, SAS, Google, and many more.


Cloud, ML, AI, and More

The company operates through two primary segments: Edge Solutions (ES) and Advanced Solutions (AS). The ES segment is responsible for the company’s end-product offerings, such as PCs, peripherals, supplies, and more, as well as endpoint security and software. The AS segment offers converged and hyper-converged infrastructure, hybrid cloud, data, security, networking, and other solutions. The segment offers integrated solution portfolios, combining leading high-growth technologies across security, networking, cloud, data and AI. In addition, the company offers Specialized Solutions and Services, such as edge-to-cloud IT solutions, as well as consulting services spanning intellectual property, scaling, technology sourcing and management, data driven marketing, and much more.

TD SYNNEX recognized the potential of the Artificial Intelligence early on and has been offering a portfolio of ready-to-deploy solutions utilizing cutting-edge GPU hardware and AI software, enabling its customers to solve most complex technology and business challenges. The company has built the Destination AI Program, a which serves as a comprehensive, strategic aggregation of its many AI services and resources. Within the program, SNX partners with global AI leaders, such as Nvidia, Microsoft, Oracle, AMD, Google Cloud, and others. Of note, its collaboration with Nvidia helps SNX’s customers deploy the chip design leader’s enterprise platforms. In addition, last year, TD SYNNEX launched a comprehensive program with Microsoft to help its customers adopt Generative AI tools.


Improving Margins, Rising EPS

On March 25, TD SYNNEX released its fiscal Q1 2024 (ended February 29th) results. Despite a continued top-line softness, seen across the industry, margins were wider than expected, and the company’s EPS was well above the consensus estimate for the quarter. The company ended the quarter with $1 billion in cash and total liquidity of $6 billion.

In fact, SNX surpassed analysts’ EPS expectations in all quarters for which these were available, with the single exception of FQ2 2023. Since the establishment of TD SYNNEX, its gross profit has grown at a CAGR of 5%, while EPS has increased at a CAGR of 14%.

The company’s latest results reflected improvement in demand as enterprise spending continued to recover from its 2022/23 decline. SNX was able to ride the nascent demand recovery thanks to its strong market share, portfolio diversification, global expansion, and its strategic shift toward higher-margin Advanced Solutions, including expansion of cutting-edge technology solutions such as Cloud, Data/AI/IoT and Security.

The company’s management expects a return to top-line growth in the current fiscal quarter, with growth acceleration seen in the second half of the year. These projections are based on the already improving performance of the ES segment—particularly PCs—as well as growing demand for infrastructure and services for AI workloads. The company said that it is beginning to see AI offerings emerging in the portfolio, and its strategic partnership will allow it to strongly capitalize on the trend in both of these segments.


Optimistic Outlook Lifts The Stock

TD SYNNEX has reiterated its guidance for mid- to high- single-digit year-over-year growth in billings in the second half of FY 2024. The management forecasted substantial free cash flow generation, which will support increased returns to shareholders through buybacks and dividends.

TD SYNNEX’s guidance for the second quarter aligns with analysts’ estimates. Analysts from prominent Wall Street firms such as JP Morgan, Barrington, Barclays, and others, have praised SNX’s results and lifted their price targets as the company has yet again bucked a negative industry trend with its outlook for earlier revenue recovery than expected for its competitors.

Encouraged by SNX’s growth trajectory reflected in the quarterly results and guidance, investors flocked to the company’s shares, lifting them by over 8% year-to-date. In the past 12 months, TD SYNNEX’s shares rose by over 19%.

Despite that, the company’s stock remains very modestly valued, trading at a ~45% discount to the IT sector’s average, and at a mid-range of its peers’ valuations. In addition, based on projected cash flows, SNX trades ~45% below its fair value, which firmly places the stock in the value category and leaves it with a large additional upside going forward.


Targeting Shareholder Compensation

TD SYNNEX’s medium-term capital allocation strategy targets annual FCF of $1.5+ billion, with 50% intended for strategic investments and M&A, leverage reduction, and cost optimization. The company targets the other half of FCF for shareholder compensation, including opportunistic share repurchases and modest, but steady dividend growth.

The company has paid dividends since 2014; it features a dividend yield of 1.25%, which is higher than the IT sector’s average of 1%. The company’s cash payouts have steadily grown in the past three years. In January 2024, SNX hiked its dividend by 14%.

In FQ1, the Board of Directors approved a new $2 billion share repurchase authorization, supplementing the existing program, of which approximately $197 million remains. The company performed $199 million of share repurchases during the past quarter.



TD SYNNEX’s performance underscores the strength and resilience of its business model, particularly its ability to effectively navigate market challenges and capitalize on emerging trends. The company’s focus on margin improvement, cash flow generation, and shareholder returns, as well as its very reasonable valuation suggest that SNX is an enticing long-term investment opportunity. As such, we believe it can be a valuable addition to the Smart Investor portfolio.


New Sell: Coca Cola Femsa SAB De CV (KOF)

Coca Cola FEMSA is a Mexican multinational beverage company headquartered in Mexico City, Mexico. KOF is a franchise bottler that produces, markets, sells, and distributes Coca-Cola trademark beverages, as well as waters, dairy drinks, beers, and other beverages sold under different trademark names.

KOF is the largest franchise bottler of Coca-Cola trademark beverages worldwide by sales volume, with operations spanning Latin America. In addition, the company is the exclusive bottler of Coca-Cola in all of its end markets, enjoying a strong competitive position in the region with little competition.

Coca Cola FEMSA boasts robust financial health and strong revenue growth; it has consistently surpassed analysts EPS projections. However, the current global macroeconomic circumstances are not favorable to emerging-market economies and currencies, as global investors flock to gravity-defeating U.S. tech, propping up the demand for USD, which is also lifted by high interest rates. With the Federal Reserve now expected to maintain higher interest rates for longer than previously expected, companies that collect their revenues in foreign currencies while trading in the U.S. (such as KOF), may continue feeling the pinch.

KOF remains a very well-run and profitable business, and we may reassess the company later on, when the macroeconomic clouds disperse for EM-based firms. However, for now, we believe it is appropriate to sell the stock.


Portfolio Stocks Under Review

This section will flag stocks that may be let go from the portfolio.

Regeneron (REGN): The FDA has rejected odronextamab, the company’s new treatment for two types of blood cancer, saying that confirmatory clinical trials were insufficient for accelerated approval. While the drug’s revenue potential is smaller than other Regeneron medicines already on the market, the rejection still impacted investor and analyst sentiment. We will closely follow any developments, placing the stock under review with a low urgency.

Molina Healthcare (MOH): The stock is placed under review with a medium urgency. Molina has been downgraded to “Sell” by BofA Securities analysts, who stated that Medicaid insurers are likely to witness margin pressure on “large portions of their membership,” pressuring 2025 margins. In addition, analysts are concerned that if reelected, President Trump would place restrictions on Medicaid. In addition to the company-specific news, all Medicare Advantage providers have been under pressure in the past several days after the Biden administration announced that final Medicare Advantage rates will remain unchanged in 2025. While Medicare is responsible for less than 20% of Molina’s revenue, the lower-than-expected rates are an additional hit to investor sentiment. The downgrade and the rates news led investors to take profits after MOH’s surge of 40% over the past twelve months.


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.

After a blockbuster Q1, markets started the second quarter on a sour note, registering broad-based declines. However, our exclusive club still includes 14 stocks, as ULTA returned to the ranks, replacing MOH, which fell through the threshold.

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

The next in line to enter the Winners’ ranks is now CHKP with a 29.1% gain since purchase, closely followed by Cigna (CI) with a 28.9% gain. Will one of them close the gap, or will someone else outrun them to the finish line?



Smart Investor Portfolio



New Portfolio Additions

Ticker Date Added Current Price
SNX Apr 3, 24 $116.43

New Portfolio Deletions

Ticker Date Added Current Price % Change
KOF Feb 14, 24 $95.06 -2.04%

Current Portfolio Holdings

Ticker Date Added Current Price % Change
SMCI Nov 8, 23 $1009.91 +295.42%
GE Jul 27, 22 $136.47 +144.22%
AVGO Mar 22, 23 $1338.76 +112.19%
ANET Jun 21, 23 $290.85 +91.97%
EME Nov 1, 23 $358.24 +73.59%
CDW Jun 29, 22 $251.63 +59.18%
AMAT May 31, 23 $206.11 +54.62%
ORCL Dec 21, 22 $124.34 +52.56%
STLA Sep 6, 23 $27.51 +51.49%
TSM Aug 23, 23 $140.22 +49.50%
GD Dec 22, 21 $290.54 +42.59%
PH Oct 11, 23 $547.44 +37.61%
ITT Oct 18, 23 $130.18 +36.30%
CI Jul 12, 23 $363.09 +35.13%
CHKP Jul 19, 23 $164.25 +29.01%
ULTA Nov 15, 23 $519.68 +28.27%
APH Aug 9, 23 $113.06 +27.84%
MOH May 3, 23 $380.92 +27.17%
JBL Jul 5, 23 $134.19 +22.90%
TXT Nov 29, 23 $94.13 +22.39%
VRTX Aug 2, 23 $409.42 +17.74%
AIT Dec 6, 23 $192.39 +16.78%
MCK Dec 13, 23 $533.27 +15.39%
CXT Oct 25, 23 $59.60 +15.15%
ACN Aug 16, 23 $336.46 +9.37%
WRB Jan 31, 24 $87.26 +6.90%
FLT Jan 17, 24 $303.26 +6.79%
DELL Mar 27, 24 $118.44 +3.31%
AIZ Feb 28, 24 $186.62 +2.68%
FLEX Feb 21, 24 $28.44 +2.56%
REGN Feb 7, 24 $954.68 +1.80%
J Mar 13, 24 $149.71 +0.36%
COR Mar 20, 24 $243.09 +0.31%
ELV Mar 6, 24 $499.22 +0.17%


What’s Next?

Our next commentary will come out on Wednesday, April 10th, before the market opens.

Until then – we wish you a world of investment success!

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