Veteran Tech Investor Highlights Four Stocks With "High Degree of Conviction"
Amidst the recent volatility in the tech sector, veteran tech investor Trent Masters remains optimistic, highlighting four stocks that he believes hold significant promise. These companies represent diverse segments of the tech landscape, from artificial intelligence (AI) and electronics manufacturing to climate technology and paint manufacturing. Masters, a portfolio manager at Sydney-based Alphinity Investment Management, shared his insights on CNBC’s "Street Signs Asia" on September 12th, revealing his "high degree of conviction" in Nvidia, Motorola Solutions, Trane Technologies, and Sherwin-Williams.
Key Takeaways:
- AI Dominance: Nvidia, the AI darling, maintains its strong position, with a near 141% year-to-date rise despite a recent dip.
- Steady Growth: Motorola Solutions, a less flashy tech player, offers consistent growth through its Land Mobile Radio devices, appealing to investors seeking stability.
- Climate Tech Potential: Trane Technologies, a leader in heating, ventilation, air-conditioning, and refrigeration systems, benefits from the increasing demand for climate solutions across industries.
- Housing Recovery Play: Sherwin-Williams, the paint manufacturer, is poised to capitalize on the potential housing market recovery, promising increased growth.
Nvidia: The AI Powerhouse
Nvidia, a household name in the tech world, tops Masters’ list. The company’s AI dominance has fueled its impressive stock performance. Despite a recent three-month decline of around 9.7%, Nvidia’s year-to-date gain remains a staggering 141%. Masters highlights the "phenomenal" growth of this large-cap stock, fueled by the escalating demand for AI accelerators.
While some investors expressed skepticism after Nvidia’s recent quarterly results announcement, Masters remains "quite encouraged" by the company’s earnings and the future of AI. " The degree of movement … in such a big stock is quite phenomenal," he said. Nvidia’s solid earnings, with adjusted earnings per share reaching 68 cents – exceeding the expected 64 cents – and revenue surpassing $30 billion, further solidify its position.
Nvidia’s strong cloud demand and the continued investments in AI by hyperscalers further bolster Masters’ optimism. He believes the company’s earnings trajectory is heading toward $5 in earnings per share. "In that perspective, I can see that earnings path for Nvidia towards $5 — and if you see them making $5 in EPS (earnings per share), the valuation is not demanding at all. So, I do remain quite positive on Nvidia," he stated.
Analysts, for the most part, echo Masters’ bullish sentiment. FactSet data shows that 59 out of 63 analysts covering Nvidia recommend a buy or overweight rating, with just four suggesting a hold rating. The average price target among analysts is $149.49, indicating potential upside of 25.5%.
Motorola Solutions: A Steady Tech Performer
While not as flashy as Nvidia, Motorola Solutions earns a spot on Masters’ list for its consistent performance and predictable growth. "This isn’t a stock like Nvidia that you might wake up one day and it beats by 20% (or) 30%. It is just a really nice, strong, compounding business that always just manages to execute well and beat market expectations," explained Masters.
Motorola Solutions’ core strength lies in its Land Mobile Radio devices, commonly known as walkie-talkies, which represent 70% of the business. These devices are particularly crucial for emergency communications and have proven their reliability in various situations, including natural disasters.
The company’s growth trajectory is further bolstered by the ongoing upgrade cycle with the launch of its new APX device. "There’s an upgrade cycle with a new device that’s come out called APX and that’s just giving a nice little tailwind to growth," Masters noted.
Motorola’s consistent performance has translated into a notable year-to-date gain of 41.1%. FactSet data indicates that of the 15 analysts covering the stock, 10 recommend a buy or overweight rating, four suggest a hold rating, and one recommends an underweight rating. The average price target among analysts stands at $449.63, implying a modest 1.8% potential upside.
Trane Technologies: Riding the Climate Tech Wave
Venturing beyond traditional tech plays, Masters is betting on Trane Technologies. This company specializes in heating, ventilation, air-conditioning, and refrigeration systems, playing a crucial role in addressing the growing concerns around climate change. Masters highlights Trane Technologies’ position as one of the "top four players" in its industry, holding a 75% market share.
The company’s focus on data centers further exposes it to the tech industry, offering a unique blend of climate technology and digital solutions. While not directly linked to AI, the company benefits from AI-driven optimization and data analysis in managing energy consumption across its installations.
"There is maybe a little bit of the AI kind of excitement, but [it is] just an incredibly well-executing business (that) generates really strong free cash flow and again has consistently outperformed market expectations," Masters added.
Trane Technologies’ impressive performance is highlighted by its recent record-breaking second-quarter revenue of $5.3 billion, marking a 19% year-on-year growth. This consistent performance has contributed to a 49.3% year-to-date jump in the company’s share price.
Analysts seem divided on the company’s future prospects. Of the 25 analysts covering the stock, nine recommend a buy or overweight rating, 14 suggest a hold rating, and two recommend a sell rating. The average price target is $361.46, indicating a slight discount of 0.8%.
Sherwin-Williams: Capitalizing on Housing Recovery
Finally, Masters recommends Sherwin-Williams, a paint manufacturer, as a valuable asset for investors hoping to capitalize on a potential housing market recovery. The company’s consistent performance and robust returns profile solidify its appeal.
Sherwin-Williams enjoys a strong position, consistently delivering mid-single-digit growth in its core business. With the possibility of renewed activity in the housing market, Masters sees a path for Sherwin-Williams to increase its growth rate to the high single digits.
"The positive that you have there is that (its) business normally grows at, say, mid single digits. As you start to get a little bit of that housing activity coming back, we can see a path for that to start to grow up towards the high single digits," he explained.
Sherwin-Williams’ stock has shown a strong rally in the past three months, with a gain of 26.4%. The company’s year-to-date gain stands at an impressive 20.1%. Analysts remain cautiously optimistic about Sherwin-Williams. Of the 30 analysts covering the stock, 16 recommend a buy or overweight rating, 12 suggest a hold rating, and two recommend a sell rating. The average price target among analysts is $375.59, suggesting a limited upside potential of just 0.1%.
Overall, Masters’ "high degree of conviction" in these four stocks reflects his belief in the diverse opportunities that exist within the tech sector and beyond. While some companies may showcase explosive growth, others offer consistent performance and predictable growth. This diverse portfolio approach allows investors to benefit from different market dynamics and capitalize on various growth opportunities.
