Not Too Late To Take The Trane

These shares are blazing away. So what is so great about Trane. Their plans are appealing.

Trane is a classic American growth stock and classic 3G. So what do they do? There are some clues below. They describe themselves as being all about creating a sustainable planet.

Trane Technologies Making Buildings More Efficient

I struggle to pinpoint exactly what they do, but the general drift is impressive.

Our purpose is centered on creating a more sustainable world and our strategy is aligned to powerful megatrends like energy efficiency, decarbonisation and digital transformation.

We’re all seeing the dire effects of climate change, and governments, NGOs and companies around the world are increasingly taking action. We’re hearing a lot about the need to invest in renewables and green the grid. What we’re not talking enough about is demand-side management. That’s where Trane Technologies comes in.

Most buildings operate up to 30pc inefficiently. Through our leading-edge technical solutions and sophisticated controls in AI, we can help our customers significantly reduce energy demand and emissions.

Our relentless innovation, proven business operating system and uplifting culture enable us to consistently deliver a leading growth profile, strong margins and powerful free cash flow. The end result is strong value creation across the board for our customers, our shareholders, our employees and for the planet.

David Regnery, CEO, Trane Technologies, Q2 2024, 31 July 2024

This company is a class act.

In the second quarter, we extended our track record of strong execution. Our global team delivered robust performance across the Board, not only bolstering our outlook for 2024, but strengthening our visibility to another year of leading performance in 2025.

Bookings continue to be exceptional, with healthy momentum into the back half of 2024, as our pipeline of projects continues to grow. Q2 bookings of $5.3bn rose to an all-time high, up 5pc from our prior high in the first quarter and up 19pc versus the prior year.

Organic revenues were up 13pc, with strong execution through the P&L, delivering 23pc adjusted EPS growth. Notably, we continued to reinvest heavily in our business and accelerated key strategic investments, further strengthening our competitive positioning for continued market outgrowth.

Booking strength continued to be led by our commercial HVAC businesses, where we’re seeing broad-based growth. In top growth verticals, such as data centers, market projections call for an exceptionally strong multiyear CapEx cycle and high levels of project complexity play to our unique strengths. The power of our elite direct sales force, deep customer relationships and leading innovation will enable us to capitalize on the tremendous opportunities ahead.

David Regnery, CEO, Trane Technologies, Q2 2024, 31 July 2024

The outlook could hardly be more solid.

Our robust bookings momentum and exceptional backlog of $7.5bn provides strong visibility into the remainder of 2024 and increasing visibility into 2025. Our backlog includes $2.8bn for 2025 and beyond, which is the level of backlog we would historically see entering a new year and we’re only halfway through 2024.

All in, we’re confident in raising our full year revenue and EPS guidance, which would deliver our fourth consecutive year of 20pc or greater adjusted EPS growth.

David Regnery, CEO, Trane Technologies, Q2 2024, 31 July 2024

Everything about this business looks good.

I’m not going to forecast our incoming order rates for the rest of the year. I will tell you that we’re going to have a backlog that’ll be very strong going into 2025, much like you saw us at the beginning of 2024. We already have $2.8bn booked for 2025 and I mean, that’s a number that we haven’t talked about that size of a number in the past. So we’re very confident there.

We’re seeing a lot of demand. It’s not just in the high growth verticals because we’re very strong there, but it’s broad-based and it really has to do with a lot of our innovation and our ability to execute.

And with our direct sales force, we go to where the opportunities are. Our teams are highly technical and we’re winning in the marketplace. It’s that simple. And I couldn’t be prouder of what that team’s been able to execute.

And by the way, we’re talking a lot about the Americas, but I would tell you that our commercial HVAC [heating, ventilation and air conditioning] business in Europe also performed extremely well. Their order rates were up 20pc. So you could see that investing in the business, always having that long-term vision as to where you want to go and the payback that you get for that, this is a flywheel, as Chris would say, and we’re seeing the impacts of that and that flywheel is going to continue to spin for us.

David Regnery, CEO, Trane Technologies, Q2 2024, 31 July 2024

Stop-Press: Buy Constellation Energy (CEG)

I have been watching this stock with great interest. I should have done more than watch. Look at that chart.

Remember the recent alert where Oracle talked about the nuclear power needed for their latest data centre? That is what CEG does and demand is booming.

Constellation is the nation’s largest producer of carbon-free energy and the leading competitive retail supplier of power and energy products and services for homes and businesses across the United States. Headquartered in Baltimore, our generation fleet powers more than 20m homes and businesses and is helping to accelerate the nation’s transition to clean energy with more than 32,400 megawatts of capacity and annual output that is 90pc carbon-free. Constellation has set a goal to eliminate 100pc of its greenhouse gas emissions by 2040 by leveraging innovative technology and enhancing its diverse mix of hydro, wind and solar resources paired with the nation’s largest carbon-free nuclear fleet. Constellation’s family of retail businesses serves approximately 2m residential, public sector and business customers, including three-fourths of the FORTUNE 100. 

Website

As you can see, they have much in common with TT in helping to pilot America towards a more sustainable future.

Microsoft Deal Sends CEG Shares Soaring

U.S. utilities are finally signing concrete supply deals with data-centre operators as the artificial-intelligence wave sparks a surge in power demand, paving the way for higher profits in the coming quarters.

Data centres are expected to account for 8pc of the power generated in the U.S. by 2030, compared with 3pc in 2022, according to a Goldman Sachs report in May.

Here are some deals announced by utilities in 2024:

Constellation Energy CEG signed an exclusive deal with Microsoft MSFT to restart one of the units at the Three Mile Island nuclear plant in Pennsylvania.

Under the agreement, the utility will provide 835 megawatts (MW) of energy to the tech giant’s data centres. The deal would also mark the first ever restart of a nuclear power plant in the U.S. after it was shut down.

Reuters, 20 September 2024

CEG is determined to look after its shareholders and is delivering the growth to enable it to do so.

In terms of buybacks, we bought $500m worth of our share during the quarter, bringing the total cash deployed on buybacks so far this year to over $1bn — or excuse me, to $1 billion. Although we’ve seen some slippage of late, we remain bullish on buybacks because our thesis is incredibly unique and compelling. We will grow base earnings by at least 10pc through the decade, backstopped by the federal PTC [the renewable energy production tax credit], and that growth does not reflect the opportunities we have in front of us from adding new clean, reliable megawatts to the grid to meet reliability needs or from selling to data centre customers. And as we have been throughout the year, we remain confident in our ability to do better each year than our base earnings, delivering even more value to our owners.

Joseph Dominguez, CEO, Constellation Energy Group, Q2 24, 6 August 2024

Share Recommendations (20 September 2024)

Trane Technologies. TT

Constellation Energy Group CEG

The Trade Desk. TTD

Arista Networks. ANET

Shares in an old QV favourite, The Trade Desk (TTD) are behaving in a promising way. Business is booming.

As you’ve seen from the press release, we delivered very strong growth once again in the second quarter. Revenue was up 26pc to $585m. Our growth rate significantly outpaced the rest of the digital marketing industry just as it has every quarter for the last few years.

I’m convinced that our success has been forged on the back of consistent strong 20pc-plus revenue growth year after year for the past several years. By comparison, our ad-funded peers have gone through periods of much lower growth and even stagnation in some cases. That means we are consistently gaining market share quarter after quarter and year after year. And I firmly believe that’s because we continue to bring the best innovation and best value to the market.

And perhaps more important, I believe that we will continue to outpace the market in the years to come, led by areas such as connected TV (CTV), which are only getting stronger. In fact, one of the most bullish things happening in advertising today are evident in our performance. Through the first half of this year, CTV growth has accelerated versus the first half of last year.

Jeff Green, CEO, the Trade Desk, Q2 2024, 8 August 2024

There is a powerful secular tailwind driving growth at TTD.

More than ever, CMOs [chief marketing officers] have to prove that what they are doing is working. And increasingly, that means revising traditional dependencies on cheap reach and all the legacy mechanisms and beliefs that support cheap reach. It means embracing the power of programmatic data-driven advertising.

We are convinced that the only scaled response to all the changes CMOs and the agencies are facing is to embrace data-driven buying. To get a healthy and competitive global economy, all roads require scaled programmatic advertising, and that bodes well for the long-term prospects of this company, The Trade Desk. As a result of these trends, our relationships with the world’s leading brands and their agencies are only getting stronger. It’s one of the key reasons we continue to significantly outperform the market and why I believe we’ll continue to gain share in the years ahead.

Jeff Green, CEO, the Trade Desk, Q2 2024, 8 August 2024

Shift From Walled Gardens To Open Internet Favouts The Trade Desk

There is a shift in ad spend which is favourable to TTD’s business.

It used to be that consumers spend about 60pc of their time within walled gardens [Google, Facebook etc.] and 40pc on the open Internet.

That trend has completely reversed since the pandemic. Why? Well, in large part, it’s because of the mass consumer shift to emerging premium open Internet channels such as CTV and digital audio. In the U.S., over the last decade or so, consumers have doubled the time they spend in these two channels alone to around five hours per day, significantly more than they spend on social media. Companies like Spotify, Netflix, Disney, Warner Bros., Discovery, and others have fundamentally changed the way that consumers behave.

I would also add that the time that consumers spend in these channels is much more leaned in and engaged than the time spent on channels such as social media. You’re much more leaned in when watching the latest hit show or the Olympics or listening to your favorite podcast than you are watching endless short videos of teenagers pulling wheelies on the West Side Highway. To come back to my earlier point, while walled gardens have always done a good job of providing easy access to ad impressions at scale with their own reporting system, today, advertisers have an alternative. For large brands, the premium open Internet now rivals walled gardens in terms of scale, thanks to advances in key channels like CTV and audio.

But that’s where the similarities end. On the open Internet, advertisers get to showcase their brands against premium content, where their targeted audience is highly engaged. And they get to measure campaign performance with much greater rigor based on high levels of authentication and actual consumer conversion data. So, while walled gardens still account for the bulk of global advertising spend, we’re starting to see many cases where the open Internet is commanding the first dollar.

CMOs of the world’s leading brands also recognize that certain channels, especially digital audio, represent tremendous value, considering the amount of consumer engagement in those channels. On average, in the U.S., consumers spend around three hours per day listening to music, podcasts, and other types of digital audio. And yet digital audio commands a small fraction, by comparison, of advertising demand. But that’s beginning to change, especially as companies like Spotify make investments to enable more programmatic and automated buying, as they highlighted in their most recent earnings call.

Jeff Green, CEO, the Trade Desk, Q2 2024, 8 August 2024

Strategy – Buy These And Other Shares On The Priceless List

I am becoming ever more impressed with the range and quality of high-growth stocks available for investors on the US stock market. Arista Networks, led by billionaire CEO, Jayshree Ullal, who is related to Nvidia’s Jensen Huang, is a case in point, classic 3G and very exciting.

Arista Networks At The Heart Of The Technology Revolution

Arista has already featured many times in Quentinvest but looks as full of potential as ever.

As a pure-play networking innovator with greater than $70bn TAM ahead of us, we are pleased with our superior execution this quarter. We delivered revenues of $1.69bn for the quarter, with a non-GAAP earnings per share of $2.10. Services and software support renewals contributed strongly at approximately 17.6pc of revenue.

Our non-GAAP gross margin of 65.4pc was influenced by outstanding manufacturing discipline realizing cost reductions. International contribution for the quarter registered at 19pc, with the Americas strong at 81pc. As we celebrated our 10th anniversary at the New York Stock Exchange with our near and dear investors and customers, we are now supporting over 10,000 customers with a cumulative of 100m ports deployed worldwide. In June 2024, we launched Arista’s Etherlink AI platforms that are ultra-Ethernet consortium compatible, validating the migration from InfiniBand to Ethernet.

Jayshree Ullal, CEO, Arista Networks, Q2 2024, 31 July 2024

These are the companies without which the global technology revolution would not be happening. I probably have not fully understood what is going on but I find it helpful to think that the world is being transformed into a sort of spaceship Earth with an amazing all-seeing computer at the heart of the spaceship being fed by an ever-growing tidal wave of data.

Put like that you can see that it is still early days and the implications of this build-out will be extraordinary. Many companies, like the ones featured above, are involved in making this happen and they are growing fast as a result.

Great Progress By Shares On My Health Care List

It is not just the companies making it happen but also the companies, like those in health care applying these new capabilities to make massive advances that provide exciting opportunities for investors. Some explosive returns are being delivered by my recently alerted group of smaller biotech businesses whose shares are blasting higher like mushrooms springing up from the ground.

This is a wonderful time to be an investor and with my Priceless list, I hope to help subscribers take full opportunity. In a world of great volatility with huge amounts of speculative money rushing in and out of shares on a short-term basis patient long-term investors can do very well.