With many companies having already reported their third-quarter earnings, it's time to check in on the progress of three companies with exciting long-term growth potential. All three delivered good earnings reports highlighting their potential and strengthening investment cases. Here's why water and pool products company Pentair(NYSE: PNR), security products company Allegion(NYSE: ALLE), and copper miner Freeport McMoRan(NYSE: FCX) are great stocks to buy now.
Pentair is an excellent water stock to buy
The investment case for this stock rests on two ideas. First, there's the potential for improvement in its residential and industrial water technology solutions and residential pool products as a lower-interest environment stimulates spending. That's particularly relevant for pool products, where discretionary spending follows the housing market.
Second, management has a host of transformational initiatives aiming to improve return on sales from 20.8% in 2023 to 24% in 2026. The initiatives span more targeted pricing, improvement in its sourcing, implementation of lean management, and investment in productivity-enhancing technology. I've discussed Pentair's transformational initiatives in more detail elsewhere.
The recent results helped highlight the potential for improvement. Pentair's sales declined by $16 million or 2% year over year in the third quarter as relatively high interest rates pressured demand. However, adjusted operating profit rose by $27 million, or 13%, led by productivity improvements caused by its transformational initiatives.
The initiatives are creating structural improvements to Pentair's business margins. When its key North American pool products market turns, the company will receive a near-to-medium-term growth kicker. Thinking longer-term, the increasing installed base of pools will drive maintenance spending on pool products. Whichever way you look at it, Pentair has a bright future.
Image source: Getty Images.
Allegion and the convergence of mechanical and electronics in security
Locks and access door technology company Allegion has a long-term growth opportunity coming from the increasing use of electronic, wireless-enabled technology in security. Electronic locks have numerous advantages, including reducing the risk of unauthorized access and allowing for remote management of who can access areas at what times. They also enable operators to monitor movements and are more practical regarding maintenance and operating costs.
As such, management believes its non-residential mechanical solutions end market will grow at a low-single-digit rate over the long term. Still, its non-residential electronics and software end markets will grow at a high-single-digit rate over the long term. Allegion generates about a quarter of its revenue from the residential end market, 35% from commercial end markets, and 40% from the institutional end market.
It's a robust secular growth story helping the company grow even in difficult-end markets. For example, the 3.3% organic growth in the third quarter took its year-to-date organic growth rate to 1.6%, and Wall Street has Allegion growing at a 4% rate in 2025.
Electronic locks only have a 10% penetration rate in the Americas and 5% in Europe in 2023, leaving plenty of potential for long-term growth. Trading on less than 19 times management's expected earnings of $7.35 to $7.45, Allegion remains an excellent value stock, notably as an improving residential housing market could boost its sales in 2025.
Freeport McMoRan, demand and supply
The case for buying the copper miner's stock isn't just based on the future demand for copper positively impacting pricing. It also rests on Freeport's ability to grow copper production in a world that's increasingly struggling to do so.
The demand side of the case for copper rests on a combination of ongoing global growth, a kicker from developing economies' thirst for investment (China continues to be the swing factor in determining demand), and, increasingly importantly, the clean energy transition. The latter is a function of the increased demand for copper from wiring in electric vehicles, charging networks, electrical transmission and distribution networks, and the electrification of everything megatrend.
In addition, many industry commentators see a copper supply gap coming as supply struggles to keep up with demand.
Image source: Getty Images.
Still, Freeport's recent results highlight its ability to grow production. Its leaching initiative generated 211 million pounds of copper last year, and management believes it will eventually reach an annual production rate of 800 million pounds of copper.
Management also discussed brownfield expansion projects in Arizona and Chile that add hundreds of millions of pounds worth of annual production over the next decade.
As such, the stock will benefit from an increasing price of copper, as it has its leaching initiative and expansion projects in its pipeline to profit from it.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
