Emerson Electric (EMR 2.85%), Carrier Global (CARR 1.23%), and Allegion (ALLE 1.42%) are all smart buys now for two reasons. First, their respective management teams are aggressively restructuring their businesses toward attractive long-term growth markets. Second, if you only invest a relatively small amount, it's a good idea to minimize trading costs by holding stocks for an extended period, and the growth prospects of all three justify holding them over the long term.
Emerson Electric and automation
Emerson Electric's transformation toward becoming a pure-play automation company continues. It's a long journey that started with the unsuccessful bid to acquire Rockwell Automation in 2017. Buying the company would have added Rockwell's expertise in factory automation to Emerson's strength in process automation (liquids and materials).
NYSE: EMR
Key Data Points
The bid failed, and since then, Emerson has slowly maneuvered toward automation anyway. It sold its majority stake in its climate technologies business to Blackstone for $9.5 billion in 2022. Furthermore, it recently announced it will sell its remaining share in the climate technologies business for $3.5 billion this year.
Meanwhile, it contributed its industrial software business and $6 billion in cash to industrial software company AspenTech for a 55% stake in the new company in 2022. Emerson also completed a $8.2 billion acquisition of the automated test and measurement systems company NI in 2023.
The AspenTech and NI deals are in the adjacent markets of industrial software and test and measurement, and strengthen the company's automation and the industrial software that powers it. Both are highly attractive markets to be in, as automation improves efficiency and accuracy while lowering costs, enabling manufacturing to be reshored in the U.S.
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 creating step changes in the productivity of industrial activity. It speaks to an exciting future for Emerson Electric.
Carrier Global and emissions reductions
Heating, ventilation, and air conditioning (HVAC) company Carrier Global is also on a transformational journey. Previously part of the former United Technologies, Carrier Global was spun off in 2020. Since then, management has repurposed the company to focus on its core competency and expand its ability to help customers meet their net zero emission targets.
NYSE: CARR
Key Data Points
A $1.1 billion stake in commercial and industrial refrigeration company Beijer Ref was sold in 2020. The Chubb fire and security business was sold for $3.1 billion in 2022 , and an announcement to sell its industrial fire business for $1.425 billion was made in March 2024. Carrier recently closed the stake of its security business to Honeywell for $4.95 billion, and management is aiming to sell its residential and commercial fire business this year.
These divestitures removed non-core businesses, while the $12 billion acquisition of European company Viessman Climate Solutions (heat pumps, gas heating, AC) signaled management's intent to grasp the opportunity to be a global player in the leading intelligent climate solutions.
The HVAC industry plays a crucial role in reducing emissions, as buildings and construction 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 sets the company up for excellent long-term growth.
Allegion is transforming security
The electronic and mechanical worlds are converging 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 enhance functionality significantly.
NYSE: ALLE
Key Data Points
For example, with digital technology, building operators can remotely identify, control, and monitor who can access which areas. This is a significant plus for enhancing security issues and can also improve operational efficiency in an institutional or commercial environment.
While around 70% of Allegion's sales are still from mechanical products, there's a long-term opportunity to grow, notably in the non-residential electronics and software solutions market.
As such, Allegion's management continues to make growth-enhancing acquisitions, such as the $900 million purchase of Stanley Black & Decker's automatic entrance solutions business in 2022, and a host of smaller companies in the field.
Image source: Getty Images.
Stocks to buy?
All three companies are refocusing on growth markets and all are cash-generating businesses that trade on favorable valuations. Based on Wall Street analyst estimates and my calculations, Emerson Electric trades at 18.2 times free cash flow in 2025, with Carrier Global at 19.2, and Allegion at 16.3. Consequently, they are attractive stocks for long-term investors looking to dip their toes in the market.
