The Rock of Capital
In this edition of the Smart Investor newsletter, we examine the stock of the world’s largest asset manager. We are not selling any stocks this week, as markets continue being too choppy for any meaningful visibility. But first, let’s dive into the latest Portfolio news and updates.
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Portfolio Updates
❖ Market & Portfolio Update: Despite the “tariff moderation” rally on Monday, most stocks are still logging losses year-to-date, and the market doesn’t seem anywhere near the end of the turbulence. We have warned in previous newsletters about a market correction – which was briefly registered two weeks ago – and the possibility of a bear market in the coming months. While this is not our base-case scenario, we take the risk of further downside seriously when assessing our portfolio holdings.
At Smart Investor, we don’t base our “buy” and “sell” decisions on short-term market swings, except when price considerations come into play. Still, macro conditions affect all corners of the market, and some portfolio adjustments may be necessary, depending on how current developments reshape the economic backdrop – and, in turn, corporate earnings.
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❖ Lockheed Martin (LMT) saw its stock decline after the U.S. government awarded the contract to build the F-47 – a sixth-generation fighter jet – to its competitor Boeing. The decision was unexpected, given that Lockheed is the incumbent defense contractor behind the F-22 and F-35, which form the backbone of current U.S. air superiority. Most analysts had assumed Lockheed would lead the next-generation program as well.
Compounding the surprise, Boeing has spent the last few years mired in scandals, including ongoing quality control issues in both its commercial and defense divisions, and has lost multiple high-profile defense competitions (such as the B-21 Raider, which went to Northrop Grumman). While diversifying defense contracts among major players like Boeing and Lockheed Martin helps mitigate risks tied to over-reliance on a single supplier, Boeing’s win still caught analysts off guard.
Despite losing out on the lucrative F-47 contract, Lockheed Martin remains financially strong, highly profitable, and the dominant force in defense, with numerous current and potential contracts from the U.S. and its allies. RBC Capital analysts believe that by diverting the F-47 contract to Boeing, the USAF is signaling that Lockheed’s focus needs to remain on the F-35 in the near term, as the agency aims to ensure at least two active fighter manufacturers in the U.S. industrial base.
As if to underscore the U.S. Department of Defense’s deep trust in the company, Lockheed Martin just received a contract modification worth up to $238 million to support the production of F-35 fighter jets for U.S. allies and foreign customers. The funding will go toward early procurement of key parts and materials to keep the production schedule on track for what’s known as Lot 20 — one of the latest rounds of F-35 manufacturing and funding. This contract wasn’t competitively bid, and was instead awarded by the U.S. Navy’s aviation systems command.
❖ IBM (IBM) has expanded its collaboration with Nvidia to enhance enterprise AI capabilities by integrating Nvidia’s AI Data Platform technologies into IBM’s offerings. The partnership focuses on developing hybrid AI solutions using open technologies to improve data management, performance, security, and governance. Key initiatives include IBM Fusion integration, deeper integration of Nvidia technologies into IBM’s Watsonx platform, and new AI-focused consulting services from IBM Consulting.
In other company news, Wedbush Securities analysts added IBM to their “Best Ideas” list alongside other tech names including Salesforce (CRM). Wedbush said its channel checks indicate that IBM is gaining significant traction in cloud adoption – outpacing competitors – and is well-positioned to capitalize on the $4.4 trillion in annual productivity gains expected from enterprise AI adoption by 2030.
❖ Microsoft (MSFT) is expanding its Security Copilot product with 11 new AI agents – six developed in-house and five by partners. These agents automate tasks like phishing alert triage and data loss management. Security Copilot, the first generative AI-powered security tool of its kind, helps organizations detect, investigate, and respond to threats swiftly. The new agents aim to ease cybersecurity workloads by handling repetitive tasks under human oversight.
In other company news, Evercore ISI has highlighted Microsoft (MSFT) and Salesforce (CRM) as the most resilient software stocks in the event of a slowdown in enterprise software spending. Analysts attribute this resilience to the companies’ strong AI capabilities and broad product offerings. They note that 90% of surveyed enterprises utilize Microsoft’s software, while 95% use Salesforce’s solutions, highlighting their widespread adoption across various industries.
❖ ASML Holding (ASML) stock rose following news that the European Parliament has urged the European Commission to launch a new AI investment program aimed at bridging the gap between Europe and the U.S. in advanced semiconductor and related technologies. The first such initiative – the EU Chips Act of 2023 – failed to attract advanced chipmakers, despite generous funding, due to red tape and the slow pace of project approvals.
❖ Broadcom (AVGO) just launched two new high-performance chips – Sian3 and Sian2M – designed specifically to power the massive data connections inside AI and machine learning clusters. These chips make optical interconnects (the high-speed links between AI servers) faster, more power-efficient, and cheaper to scale, which is a major bottleneck as AI workloads explode. AI infrastructure buildouts are one of the biggest tech investment waves right now. By solving a key limitation – power and density in data transmission – Broadcom strengthens its position at the heart of the AI supply chain. This announcement expands AVGO’s lead in a high-demand segment and reinforces its long-term growth potential tied to AI-driven data center upgrades.
❖ Alphabet (GOOGL) said it is about five years away from a quantum computing breakthrough – meaning it expects to run practical applications beyond the reach of today’s most advanced computers within that timeframe. In contrast to that long-term milestone, the company also introduced something much more immediate: Gemini 2.5, its most advanced and deployable AI model yet. Described as a “thinking model,” Gemini 2.5 can reason through its responses, leading to enhanced accuracy and performance. Google plans to embed these reasoning capabilities across its entire AI portfolio.
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Portfolio Stocks Under Review
❖ We are placing Autodesk (ADSK) under review for a potential sale. The company has come under pressure after activist investor Starboard Value initiated a proxy battle, nominating directors to overhaul the company’s board. Starboard, which holds a stake worth over $500 million, is targeting Autodesk’s cost structure and past governance failures – specifically, a billing-related disclosure scandal in late 2023 that led to an internal investigation but ultimately resulted in no accountability at the board level.
Despite raising its full-year revenue and profit forecasts, Autodesk’s spending and margin performance remain key concerns. Starboard argues the company is underdelivering relative to peers and sees untapped value through tighter cost controls and stronger oversight. In its letter to shareholders, Starboard wrote: “We invested in Autodesk based upon our belief that the Company is among the highest-quality subscription-based software businesses in the world, but one that has severely underperformed its true underlying potential.” The activist investor said the company could have performed much better were it not for “poor governance and oversight” by management and the board.
The same letter confirmed the nomination of new directors for election to the board, with the nominations intended for Autodesk’s upcoming 2025 annual shareholder meeting. So, this is no longer just a threat – Starboard has moved into active campaign mode.
For investors, the battle introduces three paths: a win for Starboard could lead to aggressive margin improvements and higher free cash flow; a compromise may nudge Autodesk toward reform without drastic change; or, if management resists and performance stalls, the stock could face downside.
Shares have gained on the news as investors bet on potential upside – but the outcome remains uncertain. Short-term volatility is likely given the circumstances and broader market anxiety, but some indicators remain encouraging. Hedge fund sentiment toward ADSK has been very positive in recent months, with total net additions of 1 million shares in Q4 2024 alone. Wall Street also remains positive on the stock, with the average analyst price target implying an upside of over 25% in the next 12 months.
❖ We are keeping Hewlett Packard Enterprise (HPE) under review due to its disappointing FQ2 revenue and earnings outlook. Under normal market conditions, weak guidance would warrant selling the stock. However, given the extreme market volatility, we are exercising caution with the “sell” button for now. We believe the sell-off was significantly overdone, as HPE’s announcement came at an unfortunate moment – when broader markets were falling, gripped by anxiety. While the outlook was weak, the reaction to it seemed excessive. Now that markets are cheering more measured tariffs and a more dovish Fed, we may have a chance to reverse some of the losses we have already registered as a “sunk cost.”
❖ We are keeping Salesforce (CRM) under review due to the muted guidance it provided in its recent earnings report. Although analysts remain bullish on CRM, several have reduced price targets, raising concerns about the timeline for meaningful returns on its heavy AI investments. D.A. Davidson analysts argue that despite Agentforce’s early success, Salesforce’s AI focus is coming at the expense of its core business, which continues to decelerate, and that Agentforce isn’t expected to meaningfully contribute to revenue growth in the near term. However, others disagree, noting that Agentforce is gaining traction, with over 3,000 paid deals since October 2024 – positioning the company for significant growth in the AI market.
CRM has registered meaningful progress on the AI agentic front, which may prove materially positive for the stock. At its TrailblazerDX 2025 event in early March, the company unveiled Agentforce 2dx – its biggest AI platform update since Einstein. The platform enables low-code AI agent development and multilingual support. Analysts at Citi and Wedbush praised it as a potential monetization engine. Barron’s noted that it may contribute “billions in incremental ARR” over time. Goldman Sachs analysts added that although it might take time for Agentforce to ramp up, the release could represent a pull-forward in tangible AI monetization versus the company’s expected timeline of calendar 2026.
❖ We are removing ITT (ITT) from our “under review” bracket as we believe the industrial company can overcome tariff-induced uncertainty. President Trump’s announcement of a 25% tariff on all steel and aluminum imports, effective March 12, 2025, initially raised concerns about increased production costs for companies like ITT that rely on these materials. However, recent developments suggest the impact of these tariffs may be less severe than initially anticipated.
This outlook is based on both the demonstrated resilience of the U.S. industrial complex and the strategic responses from international materials producers. In February 2025, ArcelorMittal – the world’s second-largest steelmaker – announced plans to construct an advanced steel manufacturing facility in Alabama, in an apparent effort to increase U.S.-based supply to meet domestic demand. Meanwhile, as Trump’s tariffs take effect, two major South Korean steelmakers, POSCO and Hyundai Steel, are considering investments in new U.S. production facilities. These announcements appear to be part of a wider trend of companies shifting production or sourcing domestically to hedge against tariffs – developments that may, over time, benefit industrial firms like ITT, as well as the broader U.S. economy.
Meanwhile, ITT is holding up well, with its stock outperforming the S&P 500 over the past month, despite the tariff scare. Its proactive approach – such as increasing its quarterly dividend by 10% – reflects confidence in its financial health and ability to navigate potential challenges. Given ITT’s strong financial performance, strategic initiatives, and the market’s positive response, it appears that initial concerns regarding the tariffs’ impact may have been overstated, as the company continues to demonstrate resilience and adaptability in the current economic climate.
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Portfolio Earnings and Dividend Calendar
❖ The Q4 2024 earnings season for the Smart Portfolio companies is over, with the next reports – from companies whose fiscal years are shaped differently – scheduled for mid-April.
❖ There are no ex-dividend dates for Portfolio companies in the next week.
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New Buy: BlackRock (BLK)
BlackRock Inc. is the world’s largest asset manager, overseeing trillions in assets across equities, fixed income, multi-asset, and alternative strategies. Through its iShares ETF platform and Aladdin technology suite, BLK delivers scalable investment solutions and institutional-grade risk analytics to clients globally. The firm serves pension funds, governments, corporations, and individuals, shaping capital allocation across public and private markets. With deep expertise in portfolio construction, sustainable investing, and retirement solutions, BlackRock drives innovation in wealth management. Its diversified revenue base, operational efficiency, and data-driven approach position it as a core enabler of global investment flows across all economic environments.
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Empire Rising
Founded in 1988, BlackRock quickly evolved from a bond-focused investment firm into the world’s largest asset manager by combining scale, innovation, and institutional trust. Its ascent was driven by landmark moves, starting with its early focus on risk management – culminating in the creation of Aladdin, a portfolio operating system now embedded across global finance.
A turning point came in 2009 with the acquisition of Barclays Global Investors with its iShares ETF business, which propelled BlackRock to global leadership in passive investing. iShares has since become the dominant global ETF platform, capturing massive inflows and reshaping the asset management landscape.
Beyond ETFs, BLK has expanded into alternatives, retirement solutions, and sustainability strategies. It manages one of the largest portfolios of private credit, infrastructure, and real assets, appealing to institutions seeking diversification and yield. The 2019 acquisition of eFront enhanced its private markets data and risk platform, integrating seamlessly with Aladdin.
In 2024, BlackRock closed its acquisition of Global Infrastructure Partners (GIP) – adding nearly $70 billion in fee-paying AUM and establishing itself as a global infrastructure investing leader. In early 2025, BlackRock and GIP partnered with Microsoft, Nvidia, and xAI to launch a strategic AI infrastructure initiative focused on building and financing data centers and enabling infrastructure.
In March, BlackRock finalized its acquisition of Preqin, a top provider of private markets data and analytics. Preqin adds a critical data layer to BlackRock’s platform, deepening Aladdin’s role as the institutional backbone of private capital markets.
BlackRock has also advanced into digital assets and tokenization, forming alliances with Coinbase and Circle, launching spot Bitcoin ETFs, and introducing its BUIDL, its tokenized money market fund. In March 2025, it debuted its first bitcoin ETP in Europe.
Today, BlackRock manages over $10.7 trillion, holds a $148 billion market cap, and ranks #205 on the 2024 Fortune 500. Its global footprint, platform scale, and data-driven infrastructure make it the operational backbone of modern capital markets.
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Rock Solid Exposure
BlackRock stands out as a rare asset in public markets – one that defends well in downturns and participates fully in the upside. Its diversified, fee-based model captures value across every major asset class and market cycle, whether capital is flowing into equities, bonds, alternatives, or cash. In bearish or volatile environments, BLK benefits from a flight to safety, increased ETF usage, and rising demand for portfolio analytics via its Aladdin platform. Its global fixed income scale and growing alternatives franchise offer built-in hedges against equity market weakness or macro shocks.
In more severe scenarios – such as a trade war, stagflation, or consumer retrenchment – BLK is not immune, but its operational resilience, scale advantages, and technology moat make it far more durable than traditional asset managers. Even when flows slow, BlackRock continues to gain long-term share thanks to its deeply embedded infrastructure – from model portfolios used by advisors to enterprise platforms like Aladdin.
On the flip side, when markets stabilize or strengthen – say, in a scenario with normalized volatility, limited geopolitical spillovers, and gradual economic growth – BlackRock thrives. Rising asset values lift AUM and advisory fees, while risk-on sentiment drives flows into higher-margin equity and active strategies. Historically, BLK has consistently outperformed peers in capturing organic growth during these upturns, aided by its ETF leadership, private market expansion, and global distribution.
In short, BlackRock is not just cycle-resistant – it’s cycle-leveraged. Its ability to grow through chaos and compound during calm makes it a high-conviction core holding for any long-term portfolio. Whether investors are repositioning defensively or leaning into the rally, BlackRock is where capital flows converge – and where earnings power scales with the global economy. For allocators seeking both downside protection and upside participation, few names offer this kind of structural edge.
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Where the Fees Flow
In 2024, BlackRock’s AUM surged to $11.6 trillion, up 15% year-over-year, fueled by a record $641 billion in net inflows and favorable market conditions. Growth was broad-based, with strong demand for ETFs, fixed income strategies, and private markets – further amplified by the closing of the GIP acquisition, which added nearly $70 billion in fee-paying assets. This rise in AUM directly lifted recurring fee revenue and positioned the firm for greater scale in 2025.
BlackRock’s revenue generation is powered by a highly recurring, fee-based model that scales with market growth. Nearly 80% of revenue comes from investment advisory, administration fees, and securities lending – all directly tied to AUM. As AUM rises through inflows or market gains, these fees increase proportionally, creating significant operating leverage.
Within advisory revenue, equity products contribute 40% of total revenue, driven by BlackRock’s dominance in iShares ETFs and indexing. Fixed income strategies added 18%, and alternatives – including private credit and hedge fund solutions – generate 10%. Multi-asset and cash management make up the remainder.
By client type, institutional clients generated 54% of AUM but just 34% of base fees, while retail clients, though only 9% of AUM, drove 25% of fees due to higher-margin products. ETFs accounted for 41% of base fees and 37% of AUM, underscoring BlackRock’s efficiency at monetizing scale.
Regionally, 68% of base fees came from the Americas, 24% from EMEA, and 8% from Asia-Pacific. While revenue remains U.S.-heavy, the firm’s global reach provides structural diversification – a key advantage in an increasingly fragmented world. BlackRock’s model blends stability, scale, and optionality, enabling margin expansion even in volatile markets.
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The Revenue Engine
BlackRock features a rock-solid balance sheet with a moderate debt-to-equity ratio and more cash than long-term debt. In 2024, the firm reported record revenue of $20.4 billion, up 14% year-over-year, driven by robust growth in investment advisory fees, performance fees, and technology services. Fourth-quarter revenue rose 9% sequentially and 23% YoY, underscoring strong momentum across business lines.
Adjusted net income for the full year rose 38% to $7.1 billion, with diluted adjusted EPS hitting $43.61 – up 15% from 2023. Fourth-quarter EPS came in at $11.93, a 23% YoY increase. Operating leverage was on full display, with adjusted operating income up 23% and pre-tax operating margin expanding to 45.5%, the highest in recent years.
Revenue growth was broad-based: base fees grew 13%, tech services revenue rose 8%, and performance fees surged 118% as markets stabilized and alternative strategies outperformed. Securities lending revenue was the only segment to decline (-9% YoY), driven by muted short activity and softer demand to borrow securities. Meanwhile, advisory revenue jumped 41%, boosted by bespoke mandates and private market demand.
BlackRock’s Aladdin platform generated $1.6 billion in tech services revenue – up 8% YoY – as adoption remained strong among asset managers, insurers, and sovereign wealth funds seeking unified risk and analytics infrastructure.
Expense growth was contained at 9%, despite higher compensation tied to strong performance. Return on equity improved significantly, backed by scale, margin expansion, and tight cost control. In capital management, BlackRock returned over $4.7 billion to shareholders in dividends and buybacks, even as it funded strategic acquisitions like GIP and Preqin.
With $10.7 trillion in AUM and a business model that scales with market growth, BlackRock entered 2025 with strong earnings visibility, high free cash flow conversion, and ample flexibility to invest, return capital, and weather volatility without balance sheet strain. While it hasn’t issued formal guidance, the firm maintains a pro-risk stance, citing opportunities in AI infrastructure, thematic strategies, and private markets as key long-term growth engines.
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Compounding Force
BlackRock’s stock has gained nearly 20% over the past year, strongly outperforming the S&P 500 and most industry peers. The stock hit an all-time high in January before pulling back about 15% during a period of market turmoil and shaken investor sentiment. However, as participants reassessed the fundamentals – as discussed above – BLK resumed its upward trend, rising over 8% in just two weeks.
Despite the rebound, the earlier sell-off leaves BLK’s valuation still slightly below its multi-year average, offering an attractive entry point. While the stock trades at a premium to the broader Financials sector and most peers, it is justified by BlackRock’s superior scale, consistent revenue growth, and industry-leading profitability. Notably, when compared to alternative asset managers, BLK’s multiples sit near the low end of the valuation range. Discounted cash flow models suggest the stock is undervalued by around 10%.
Top Wall Street analysts see further upside, with consensus price targets pointing to an additional 22%+ gain over the next 12 months. Several analysts have raised their targets in recent months, citing BlackRock’s strong earnings momentum, strategic expansion, and market leadership.
Beyond stock appreciation, BlackRock rewards shareholders through steady dividends and disciplined buybacks. It began paying dividends in 2003, five years after its IPO, and has increased them annually ever since. With a 2.14% dividend yield, BlackRock offers a payout well above the Financials sector average. Its modest payout ratio and robust earnings support expectations for continued dividend growth in the years ahead. Buybacks also enhance shareholder returns. In 2024, BlackRock repurchased $1.63 billion in stock, up from $1.5 billion in 2023, and reaffirmed its commitment to capital returns.
Since its IPO, BlackRock has delivered a compounded annual total return of 21%, turning a $1 investment in 1999 into over $85 today. For comparison, that same $1 in the S&P 500 would be worth less than $7 – a testament to BlackRock’s long-term compounding power. As it enters 2025, BLK is positioned for more growth than ever, fueled by new engines like AI infrastructure, private market data dominance, leadership in digital assets, and tokenization. The company expects to keep compounding value at scale for years to come.
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Investing Takeaway
BlackRock is the world’s largest asset manager and a core pillar of global finance, offering scale, resilience, and growth across every economic cycle. Its diversified model spans ETFs, fixed income, private markets, and institutional technology, enabling it to capture flows in both bullish and defensive environments. Deep client integration through platforms like Aladdin creates long-term stickiness and structural margin advantages. Strategic moves into AI infrastructure, tokenization, and private market data strengthen its positioning in next-generation finance. Through its industry leadership, global reach, and embedded growth engines, BlackRock offers a rare combination of durability, innovation, and compounding potential, making it a high-conviction holding for long-term investors.
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Smart Investor’s Winners Club
The 30% Winners Club includes stocks from the Smart Investor Portfolio that have risen at least 30% since their purchase dates.
The markets ebbed and flowed, but our Winners’ ranks have remained unchanged, still including 12 stocks: GE, AVGO, TPL, ANET, HWM, EME, TSM, ORCL, PH, APH, IBKR, and ITT.
The first contender is still BRK.B with a gain of 25.28% since purchase. Will it close the gap, or will another stock outrun it to the finish line?
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Disclaimer
The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.
