Buying the dip in Fortive shares is a strong move

After soaring to nearly $80 in November 2021, Fortive Corp. (NYSE: FTV) below $60 this month. Shares of the former Danaher division are starting to recover alongside the market rally, but still have good upside potential.

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Fortive is one of a group of S&P 500 companies that have experienced sharp adjustments in their P/E ratios as a result of rising interest rates. Trimble, Teledyne Technologies and other similar scientific and engineering instruments have seen similar revaluations since the beginning of the year.

With Fortive trading at a more reasonable 38x gain and buying pressure pushing the stock back towards the low $60 level, the worst may be over.

Management’s expectations for double-digit earnings growth and easing supply chain restrictions this year point to a strong recovery. And when it comes to diversified ways to achieve that kind of growth, Fortive is about as diversified as it gets.

What does Fortive do?

With a presence in 50 countries, Fortive is a global provider of connected workflow technologies in a variety of end markets. Customers in the food & beverage, life sciences, marine, oil & gas, semiconductors and transportation rely on Fortive for a range of intelligent control solutions and precision technologies. The company’s software solutions designed to improve food safety, workplace safety and patient care are divided into three distinct activities.

The largest segment is Intelligent Operating Solutions, which accounted for 41% of sales last year. It supplies instrumentation and software for building management, including for smart offices and high-tech warehouses. Fluke, a test and measurement tool company, is the best-known brand here.

Then there is the Precision Technologies group, a collection of seven sub-companies solving technical challenges related to food and beverage manufacturing, clean energy and next-generation communications. It comprises about a third of the company.

Finally, the Advanced Healthcare Solutions division works with hospitals and labs to ensure safety standards are met, instruments work properly, and complex procedures are followed. Infection prevention technologies, surgical asset management and therapy automation are among his specialties.

What are Fortive’s growth engines?

Because Fortive is so well diversified in geography and end-market, it’s hard to pinpoint a single area to drive growth. Instead, it relies on contributions from each of its divisions and brands. Last year, this was $5.3 billion in revenue and 13% growth over 2020.

Geographically, the US accounts for about half of sales, followed by China at about 12%. So while a healthy US economy is paramount, government relations with and demand from China are key themes to monitor.

Another key growth catalyst is Fortive’s move into the cloud computing space. The company bought Global Traffic Technologies and eMaint Enterprises to gain a foothold in the burgeoning global cloud services market. It is a market that, according to Allied Market Research, will grow at an annual rate of 16% and will reach $1.6 billion by 2030.

For now, the Global Traffic and eMaint acquisitions will provide access to the cloud asset and equipment management services market, which is somewhat of a niche relegated to select industrial markets. Over time, though, it wouldn’t be surprising if Fortive were to find more software-as-a-service (SaaS) companies to complete its portfolio and improve its long-term growth prospects.

Is Fortive Shares a Buy?

Fortive is a unique investment that offers exposure to a variety of growing industries. With the increasing focus on food and workplace safety and the quality of healthcare, it is expected that there will be an increasing demand for its technology-driven products.

For this year, management’s projection for adjusted earnings per share of $3.00 to $3.13, in the middle, implies annual growth of 12%. Looking ahead to 2023, The Street forecasts comparable year-on-year growth. This means that Fortive is expected to grow well above expectations for the global economy.

With Fortive, investors really get about 20 companies in one. Together they address the changing needs of manufacturers, building managers and healthcare providers in a progressive way.

The stock is therefore a diversified way to capitalize on growth across multiple sectors and countries. It comes with a small dividend, but the main attraction is the growth associated with its broad customer base. Fortive is trading 23% below its peak and is a good way to bolster a long-term portfolio.

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