UBS’ Bottom Quant Stocks In AI, IT, Healthcare & Others: 29 Stocks In All Sectors

12. A. O. Smith Corporation (NYSE:AOS)

Number of Hedge Fund Investors In Q2 2024: 33

Sector: Industrial

A. O. Smith Corporation (NYSE:AOS) is a specialty industrial products firm that makes and sells boilers, water heaters, and associated products. Roughly 97% of its sales come from China and North America, with China accounting for 21% and North America 78%. Consequently, while A. O. Smith Corporation (NYSE:AOS) benefits from a differentiated business model which makes it one of the top players in its industry, the stock is muted when it comes to growth. This is also evident in its revenue, with sales growing by a hairline of 2.6% between 2022 and 2023. It also means that A. O. Smith Corporation (NYSE:AOS) has few avenues to disrupt its industry, and consequently, it has to rely on shipping high volumes and maintaining economies of scale to drive profitability. The firm benefits from stable management hands which is evident by the fact that it has been in business for more than a century.

A. O. Smith Corporation (NYSE:AOS)’s management shared details about its long-term growth strategy during the Q3 2024 earnings call:

“As we have discussed earlier this year, we commenced several expansion projects in 2024 to support our long-term growth strategy. We recently celebrated the grand opening of our new facility on our campus in Juárez where we will manufacture gas tankless water heaters for North America. While there is still startup work to be completed, production is expected to begin in early 2025 with the ramp up through the year. We have also added additional heat pump capacity on the same site in support of increased demand for our residential heat pump water heaters. Also, we have made progress on our new state of the art commercial product development center, which is located on the same site as our Lebanon, Tennessee facility. This expanded facility, which is projected to be completed in mid-2025, will enhance our product development and testing capabilities and knowledge sharing by bringing together our commercial water heater and boiler engineering teams.”