Successful investing requires many things. From patience to discipline to resolve, those who win at investing often hone a variety of qualities. Absent from this list, however, is an interest in riding the bandwagon. Investors need not pack their portfolios with popular stocks to generate outsized returns. Take Linde (LIN -0.15%), for example, a leader in the production of industrial gases that flies under most investors' radars.
Although most investors don't recognize its name, Linde stock has outperformed the S&P 500 index considerably over the past five years. Soaring more than 186%, Linde stock has generated a total return that more than doubles the 90% total return of the S&P 500. And there's no reason to think that its best days are behind it -- especially with a backlog that exceeds $8 billion.
Let's look at market leader Linde
Not every market leader will turn out to be a successful investment, but finding stalwart businesses that hold dominant positions in their industries is a great place to start -- such is the case with Linde, which has extensive global operations and is the largest industrial gases stock by market capitalization. Building a robust infrastructure of broad industrial gas production and distribution is no simple feat. Consequently, the company is not likely to find new companies pressuring to compete with it.
In fact, Linde recognizes the value of these assets in its 2022 10-K, where it states, "Major pipeline complexes are primarily located in the United States and China. These networks are a competitive advantage, providing the foundation of reliable product supply to the company's customer base." In 2022, the United States and China accounted for 32% and 8% of revenue, respectively.
Serving various industries helps to reduce risk and generate strong cash flow
Spanning a wide swath of industries that use industrial gases in their operations, Linde's customers -- located throughout the world -- include healthcare, food and beverage, mining, electronics, and a variety of other businesses. This diversity in its customer base helps Linde to mitigate the risks associated with a downturn in an individual industry. Consumer-facing businesses such as healthcare, electronics, and food and beverage customers, for instance, are more resilient, according to Linde. They are steadier in nature and don't fluctuate wildly. Industrial customers, on the other hand, like those operating in manufacturing, metals and mining, and chemicals and energy, are more cyclical.
Besides its advantageous customer base, Linde is adept at translating revenue into cash. While some investors prize earnings per share (EPS), it's important to remember that earnings per share can misrepresent a company's performance since the metric includes noncash charges. Free cash flow, however, is not vulnerable to creative accounting, leading many to prioritize it over EPS.
With this in mind, consider how Linde measures up against its leading industrial gas competitor, Air Products (APD 0.43%). The comparison isn't perfect since there's some disparity between the two companies: Linde and Air Products have market caps of $198 billion and $58.8 billion, respectively. But it's a worthwhile exercise, nonetheless.
LIN EPS Diluted (Annual) data by YCharts.
Air Products has reported higher EPS over the past few years, but Linde is generating substantially more cash. And that's something smart investors are eager to celebrate.
There's growth left in the gas tank
While Linde's business may be boring, there's a major -- and exciting -- growth opportunity that the company is enthusiastic about pursuing -- hydrogen. In addition to oxygen, nitrogen, and argon (among several others), Linde is committed to producing and distributing hydrogen. Based on its leadership position in the United States alone, Linde brandished itself as the "largest supplier of liquid hydrogen in the country."
Earlier this month, the company announced that it has increased daily production at a facility in Alabama to 30 tons for manufacturing and electronics customers as well as others. This complements another deal the company inked in the U.S. in 2023: a $1.8 billion blue hydrogen plant to be located in Texas. Linde expects the project to commence operations in 2025.
Should you gas up on Linde stock today?
Think that the only path to investing success is via high-risk/high-reward stocks? Think again. Boring stocks, like Linde, can provide impressive, market-beating returns. For investors looking to fortify their holdings with a resilient ticker that has ample growth opportunities ahead of it, Linde is a compelling choice.
