Emerson Electric (NYSE: EMR), Carrier worldwide (NYSE: CARR)And Accusation (NYSE: ALL) are all smart purchases now 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 shares for a longer period of time, and the growth prospects of all three justify holding them over the long term.
Emerson Electric and automation
Emerson Electric’s transformation into a pure automation company continues. It is a long journey that started with the failed takeover bid Rockwell Automation in 2017. Buying the company would have added Rockwell’s expertise in factory automation to Emerson’s strength in process automation (fluids and materials).
The bid failed and since then Emerson has slowly maneuvered towards automation. It sold its majority stake in its climate technology business Black stone for $9.5 billion in 2022. Moreover, it recently announced that it will sell its remaining stake in the climate tech sector for $3.5 billion this year.
Meanwhile, it contributed its 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.
The agreements between AspenTech and NI address the adjacent markets of industrial software and test and measurement, strengthening the business’ automation and the industrial software that powers it. Both are very attractive markets to operate in as automation improves efficiency and accuracy while reducing costs, allowing production to be moved to the US.
Meanwhile, advances in digital technology (digital twins, the Internet of Things, etc.) and the creation of smart factories and process plants powered by industrial software are driving step-changes in the productivity of industrial activities. It speaks of an exciting future for Emerson Electric.
Carrier Global and emissions reductions
Heating, ventilation and air conditioning (HVAC) company Carrier Global is also transforming. Carrier Global, previously part of the former United Technologies, was spun off in 2020. Since then, management has repurposed the company to focus on its core competencies and expand its ability to help customers meet their net zero emissions targets.
In 2020, a $1.1 billion stake in commercial and industrial refrigeration company Beijer Ref was sold. Chubb’s fire and security business was sold for $3.1 billion in 2022, and an announcement was made in March 2024 to sell its industrial fire business for $1.425 billion. recently closed shares of its security business Honeywell for $4.95 billion, and management aims to sell its residential and commercial fire businesses this year.
These divestments removed non-core activities, while the US$12 billion acquisition of European company Viessman Climate Solutions (heat pumps, gas heating, AC) signaled management’s intention to seize the opportunity to become a global player in the field of leading intelligent climate solutions.
The HVAC industry plays a critical role in reducing emissions, as buildings and structures contribute 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 positions the company for excellent long-term growth.
Allegion transforms safety
The electronic and mechanical worlds come together in security and access solutions. Doors were once opened mechanically with a key, but the future lies in integrating electronic Internet of Things technology to significantly improve functionality.
For example, digital technology allows building managers to remotely identify, control and monitor who has access to which areas. This is a major asset for improving security issues and can also improve operational efficiency in an institutional or commercial environment.
While approximately 70% of Allegion’s revenue still comes from mechanical products, there is an opportunity for long-term growth, particularly in the non-residential electronics and software solutions market.
As such, Allegion management continues to make growth-enhancing acquisitions, such as the purchase of $900 million in Stanley Black & Decker‘s automatic access solutions in 2022, and a large number of smaller companies in the field.
Buying shares?
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 is trading at 18.2 times free cash flow in 2025, with Carrier Global at 19.2 times and Allegion at 16.3 times. As a result, they are attractive stocks for long-term investors looking to dip their toes in the market.
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Lee Samaha holds positions at Honeywell International. The Motley Fool holds and recommends positions in Blackstone and Emerson Electric. The Motley Fool has a disclosure policy.
3 Smart Stocks You Can Buy Now with $500 and Hold for the Long Term was originally published by The Motley Fool
