3. Trane Technologies PLC (NYSE:TT)
Number of Hedge Fund Investors: 46
When asked about Trane Technologies, Cramer hit the “buy, buy, buy” button and said:
“Hard to stop a Trane…Trane is for real.”
Trane Technologies PLC (NYSE:TT) is a manufacturing company focusing on heating, ventilation, air conditioning and refrigeration systems. The stock is already up 67% over the past year. The company has benefitted heavily amid demand increases for energy efficiency, decarbonization, and digital transformation solutions, in addition to pricing tailwinds. This growth helped the company offset declines in residential and transportation end markets in 2023. Trane Technologies PLC (NYSE:TT) still has a strong backlog and its data center investments are expected to bear fruit. It’s positioned to benefit from the data center market because it provides cooling solutions, something that’s direly needed for data centers. Trane Technologies PLC (NYSE:TT) management talked in detail about the data center opportunity during Q1 earnings call:
“We talked a little bit about data centers earlier. But look, this is a vertical that tends to move faster from a technology adoption than others. And we’re working closely with partners and data center customers to understand what the trends are and I would tell you, we’re right in the middle of it. In the data center, Andrew, look at the entire system, okay? We like to look at things at a system level. And you’re hearing a lot right now on the terminal side of data center. So that would be like direct cooling to the chip or immersion cooling. We look at the entire system. So the air handling side of it as well as the sophisticated chillers, the high-efficiency chillers with next-gen refrigerants that are also required.
I think where you’re going to hear a little bit more is on the thermal management side of a data center. They produce a lot of heat that heat is taken out of the data center, how can you repurpose it. And that’s some of the technology that we’re in discussions, kind of at a thought leadership level as to how we can take an asset and — or heat and turn it into an asset in the future.
However, Trane Technologies PLC (NYSE:TT) valuation has been a concern for investors. The stock’s forward P/E of 32 is high when compared with the industry median of 19. Over the past five years its P/E has been around 25.69x. Currently, its P/E on FY24 and FY25 consensus EPS estimates are 31.27x and 27.85x, respectively. These valuation metrics do not show any decent discount.
NZS Capital stated the following regarding Trane Technologies plc (NYSE:TT) in its fourth quarter 2023 investor letter:
“We had no major shifts in our portfolio positioning, but what changes we made stemmed from stock-specific opportunities. We remain highly exposed to information technology given our focus on innovation and disruption, but we are increasingly finding opportunities in other sectors. For example, we shifted Trane Technologies plc (NYSE:TT) into our resiliency sleeve. Trane, which we discuss in greater detail below, is a leader in HVAC, an attractive industry aligned with decarbonization.
Our disciplined approach considers two types of stocks: resilient and optional. In both cases, we consider a broad range of outcomes. Rather than making one prediction and investing behind it, we consider the range of scenarios that provide a favorable return. A stock with a broader range of outcomes, and thus more uncertainty, is considered optional and remains less than 1.5% typically. A company with a narrower range of outcomes gives us more confidence and can fit in the resilient sleeve, which typically includes positions sizes from 2.5% positions to 6% of the portfolio
