Emerson Electrical (NYSE: EMR), Global operator (NYSE: CARR)and Allegory (NYSE: ALL) Now they are all smart purchases for two reasons. First, their respective management teams are aggressively restructuring their businesses toward attractive long-term growth markets. Second, if you’re only investing a relatively small amount, it’s a good idea to minimize trading costs by holding stocks for a long period, and the growth prospects of all three justify holding them long-term.
Emerson Electric and automation
Emerson Electric’s transformation into a dedicated automation company continues. It’s a long journey that began with the failed takeover bid Rockwell Automation in 2017. Purchasing the company would have added Rockwell’s expertise in factory automation to Emerson’s strength in process automation (liquids and materials).
The bid fell through, and Emerson has since slowly maneuvered toward automation anyway. He sold his majority stake in his climate technologies business to black stone for $9.5 billion in 2022. Additionally, it recently announced that it will sell its remaining stake in the climate technologies business for $3.5 billion this year.
Meanwhile, he contributed his industrial software business and $6 billion in cash to the industrial software company. AspenTech for a 55% stake in the new company in 2022. Emerson also completed an $8.2 billion acquisition of automated test and measurement systems company NI in 2023.
AspenTech and NI’s deals are in the adjacent industrial software and test and measurement markets, and strengthen enterprise automation and the industrial software that powers it. Both are very attractive markets, as automation improves efficiency and accuracy while reducing costs, allowing manufacturing to be relocated to the US.
Meanwhile, advances in digital technology (digital twins, Internet of Things, etc.) and the creation of smart factories and process plants driven by industrial software are generating radical changes in the productivity of industrial activity. Talk about an exciting future for Emerson Electric.
Carrier Global and emissions reduction
Heating, ventilation and air conditioning (HVAC) company Carrier Global is also on a transformation journey. Carrier Global, previously part of United Technologies, was spun off in 2020. Management has since repurposed the company to focus on its core competency and expand its ability to help customers meet their net-zero emissions goals.
A $1.1 billion stake in commercial and industrial refrigeration company Beijer Ref was sold in 2020. Chubb’s fire and security business was sold for $3.1 billion in 2022, with the sale announced in March 2024. of its industrial fire fighting business for 1,425 million dollars. recently closed the stake in its security business to honeywell for $4.95 billion, and management intends to sell its residential and commercial fire business this year.
These divestitures eliminated non-core businesses, while the $12 billion acquisition of European company Viessman Climate Solutions (heat pumps, gas heating, air conditioning) signaled management’s intention to seize the opportunity to be a player global in the main smart climate solutions.
The HVAC industry plays a crucial role in reducing emissions, with buildings and construction contributing to 40% of global greenhouse gas emissions. As such, Carrier’s focus on investing in more efficient heat pumps, HVAC systems and digital technology makes sense and sets the company up for excellent long-term growth.
Allegion is transforming security
The electronic and mechanical worlds are converging in security and access solutions. Doors were once opened mechanically with a key, but the future involves integrating Internet of Things electronic technology to significantly improve functionality.
For example, with digital technology, building operators can remotely identify, control and monitor who can access which areas. This is a significant advantage in improving security issues and can also improve operational efficiency in an institutional or commercial environment.
While about 70% of Allegion’s sales still come from mechanical products, there is an opportunity for long-term growth, especially in the non-residential electronics and software solutions market.
As such, Allegion management continues to make growth-enhancing acquisitions, such as the $900 million purchase of Stanley Black & DeckerThe automated entry solutions business in 2022 and a number of smaller companies in the field.
Stocks to buy?
All three companies are refocusing on growth markets and are all cash-generating companies trading at favorable valuations. Based on Wall Street analyst estimates and my calculations, Emerson Electric trades at 18.2 times free cash flow in 2025, with Carrier Global at 19.2 and Allegion at 16.3. Consequently, they are attractive stocks for long-term investors looking to dip their toes into the market.
Should you invest $1000 in Emerson Electric right now?
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Lee Samaha has positions at Honeywell International. The Motley Fool has positions and recommends Blackstone and Emerson Electric. The Motley Fool has a disclosure policy.
Three Smart Stocks to Buy and Hold for the Long Term with $500 Right Now Originally Posted by The Motley Fool