From Stansberry Research:
"Boring" businesses don't guarantee boring gains...
In fact, it's often the other way around.
Longtime readers know that even companies with simple business models can make great investments.
While these companies may not be the most exciting for investors, they usually produce steady, long-term growth... And they're usually less volatile investments than their exciting, "high flying" counterparts – which makes them safer investment vehicles in the long run.
This week's company fits perfectly into this investing philosophy...
Ingersoll Rand (NYSE: IR) sells, installs, and maintains heating, ventilation, and air conditioning ("HVAC") equipment.
The company's industrial systems trade under the "Ingersoll Rand" name... But you may know its brands for commercial and residential properties: Trane and American Standard. Ingersoll Rand also owns Thermo King – the top seller of refrigerated transportation like trucks and train cars – and Club Car, a maker of small electric vehicles like golf carts.
If you look at the things that drive Ingersoll Rand's business, they are all picking up right now. Homebuilding and home-improvement spending are both growing at rapid rates... And on the commercial side, both office and industrial space are constantly being added.
The bright outlook for the economy has also made businesses more willing to replace old HVAC systems with new ones.
When you look at a company that's been around, in some form, for nearly 150 years, the past returns can show you how well the company succeeds at growing profitably.
Ingersoll Rand is a mature company that grows its sales at around 5% a year. The company has built up a solid track record of turning sales growth into a rising share price for investors. Over the past 30 years, it has posted a total return of 13.1% per year – beating the S&P 500 Index's 10.1%.
Ingersoll Rand has done this by paying consistent and growing dividends. The company had to reduce its dividends in the last recession... But since then, its payout has risen from $0.28 per share to $2.12 per share. The stock currently yields about 2%.
The company also buys back a lot of stock. It has spent about $7.3 billion in net share repurchases since 2010. That's a lot for a company with a current market cap of $30 billion... And Ingersoll Rand didn't fund that by taking on debt. Its long-term borrowings have stayed about even.
The only way you can return that kind of capital to shareholders is by being consistently profitable.
Just take a look...
On its $15 billion in revenue, Ingersoll Rand makes $1.4 billion in net income. That equates to a profit margin of 9%. While profit margins can vary after special charges – expenses that aren't expected to recur – its gross margin has been remarkably stable. Currently at 31%, it rarely strays more than a couple percentage points away from that level.
Ingersoll Rand also generates healthy cash flow. On $1.4 billion of operating cash flow, it pays about $375 million on capital expenditures, leaving it with just over $1 billion in free cash flow.
Not only is it an established company in its industry, Ingersoll Rand has a foothold in the future of energy – smart energy.
Heating and cooling account for about 40% of total energy usage. When it's time to cut energy use, that's one of the best places to do it. That's where Ingersoll Rand comes in... Its products allow customers to cut energy costs and usage – or shift it to different times of the day.
After all, everyone wants to save money... And upgrading a 15- or 20-year-old HVAC system can make a huge difference.
Ingersoll Rand also has a division of energy services that provides software and systems for smart metering and energy management. The company projects that group will grow its revenue by $400 million by 2020.
We already see this growth happening.
Whatever you may think about climate change, corporations are moving in this direction if only for the cost savings.
According to Bloomberg, solar-electricity costs will drop by 66% by 2040... And that's despite new tariffs on foreign solar panels and proposed cuts to research funding for renewable energy.
Forty-eight percent of Fortune 500 companies have specific clean-energy goals, according to the 2017 Power Forward 3.0 report. That's up from 5% in 2014.
They're spending with Ingersoll Rand.
The company is growing at twice the rate of its broader industry... And it credits that growth to its renewable-energy products.
With Ingersoll Rand, you don't have to bet on some unproven technology, or take a flier on a management team that's never shown it knows how to make money...
The results are clear.
In the first quarter of 2019, Ingersoll Rand beat estimates on both earnings and sales. What's more, the company boosted its 2019 earnings forecast above analysts' expectations.
The company's track record speaks for itself.
As you can see, shares of Ingersoll Rand are on a strong uptrend...
Over the past year, Ingersoll Rand's stock has soared nearly 45%.
When you expand that time frame, the gains get even more impressive. Over the past five years, the stock has more than doubled... And it recently hit a fresh all-time high.
Ingersoll Rand is a perfect example of the big gains that are possible with simple business models.
Heating and air conditioning equipment may not be an exciting field... But it can lead to huge profits.
Sometimes investing is simple.