Parnassus Investments, an investment management company, released the “Parnassus Mid Cap Fund” fourth-quarter 2025 investor letter. A copy of the letter is available to download here. The Q4 2025 marked the fund’s consecutive quarter of outperformance, returning 1.17% (net of fees) in the quarter, surpassing 0.16% return for the Russell Midcap Index. The performance was supported by investments in the Information Technology sector, as well as holdings in Utilities. During the quarter, the market started to ...

Core Viewpoint - The macroeconomic landscape has shifted due to rising geopolitical tensions, increasing the likelihood of stagflation in Europe, which is not fully priced into the market [1] Group 1: Market Performance - Major European stock markets have experienced significant sell-offs since the onset of the Iran war, with key indexes like the Euro Stoxx 50 and Stoxx 600 dropping an average of 2.5% during the first full trading session following US escalation [3] - By late March 2026, benchmark European equity indexes had fallen between 4% and 6% as the conflict continued [3] Group 2: Economic Impact - Europe's heavy reliance on imported energy has exacerbated the impact of the conflict, with wholesale natural gas prices increasing by 35% and Brent crude oil prices surging approximately 50% to $110 per barrel [6] - The rise in oil prices has led to inflation reaching multiyear highs in countries like Spain and Germany, raising concerns that the European Central Bank may need to delay interest rate cuts [7] Group 3: Sector Performance - Defensive sectors such as telecom and consumer staples are expected to outperform during stagflation, while consumer discretionary stocks are likely to lag [1] - Defense contractor stocks are rising due to anticipated increases in military spending, whereas traditional banking and industrial sectors, including Deutsche Bank, Siemens, and Schneider Electric, have seen significant declines due to rising sovereign yields and weakening manufacturing momentum [7] - Deutsche Bank shares have dropped 20% in the past month alone [8]

Core Insights - Caterpillar Inc. (CAT) and Komatsu Ltd. (KMTUY) are leading manufacturers in construction and mining equipment, with Caterpillar being the market leader and Komatsu following closely behind [1][3] - Caterpillar has a market capitalization of $322 billion, while Komatsu's market capitalization stands at $36 billion, with 80% of Komatsu's revenues generated outside Japan [2] Caterpillar Overview - In Q4 2025, Caterpillar reported record revenues of $19.1 billion, an 18% year-over-year increase, with earnings per share at $5.16, reflecting a modest growth after five quarters of decline [4] - For 2026, Caterpillar anticipates revenue growth near the upper end of its long-term 5-7% CAGR target, with adjusted operating margins projected between 15-19% due to tariff impacts estimated at $2.6 billion [5] - The company aims for a CAGR of 5-7% through 2030, with free cash flow projected between $6-$15 billion, and plans to return all free cash flow to shareholders while growing dividends at a high-single-digit rate [6] - Long-term growth is supported by rising U.S. infrastructure spending, increased demand for mining equipment, and expansion in high-margin aftermarket services, targeting service revenues to grow from $24 billion in 2025 to $30 billion by 2030 [7] Komatsu Overview - Komatsu reported a 3.5% year-over-year increase in net sales to JPY1,023.9 billion ($6.46 billion) in Q3 of fiscal 2025, but net income declined by 13.1% to JPY94.1 billion ($0.59 billion) [8] - The Construction, Mining and Utility Equipment segment saw a 3% rise in net sales, but profits fell by 17.9% due to higher costs and lower sales volume [9] - For fiscal 2025, Komatsu expects a 5.3% decline in net sales and a 27.2% drop in net income, with construction equipment sales projected to decrease by 6% [12] - Komatsu faces vulnerabilities due to U.S. tariffs, expecting annual negative impacts of 90 billion yen ($0.58 billion) from increased costs, and plans to implement price hikes to mitigate these effects [13] Comparative Analysis - Caterpillar shows stronger growth and earnings recovery compared to Komatsu, with record revenues and a favorable outlook driven by infrastructure demand [10] - In the past year, CAT stock has gained 105.1%, while KMTUY has gained 29.2%, with Caterpillar trading at a forward earnings multiple of 28.96X compared to Komatsu's 14.68X [20][21] - Caterpillar's return on equity (ROE) is significantly higher at 45.76% compared to Komatsu's 11.73% [24] - Both companies are positioned for long-term growth, but Caterpillar's stronger growth outlook and earnings momentum make it a more favorable investment choice at this time [26]

Core Insights - All three major U.S. stock indices closed down over 1%, driven by investor concerns about persistent inflation and the Federal Reserve's decision to keep rates unchanged amid rising Middle East tensions and surging oil prices [1] - The February Producer Price Index (PPI) indicated that wholesale price increases are harder to control than anticipated, disappointing expectations for a smooth economic recovery [1] Dividend Growth Stocks - The appeal of high-beta growth stocks is diminishing, leading investors to favor steady dividend-growth stocks, which have a proven track record of increasing payouts and demonstrate balance sheet resilience [2] - Stocks with a strong history of year-over-year dividend growth can enhance portfolio resilience and offer greater potential for capital appreciation compared to simple dividend-paying or high-yield stocks [3] - Selected dividend growth stocks include Flowserve (FLS), Analog Devices (ADI), Broadcom (AVGO), NVIDIA (NVDA), and TIM S.A. (TIMB), which are considered solid choices for investment [3] Advantages of Dividend Growth - Stocks with a strong history of dividend growth belong to mature companies, providing a hedge against economic or political uncertainty and stock market volatility [4] - These stocks exhibit strong fundamentals, including sustainable business models, profitability, rising cash flows, solid liquidity, strong balance sheets, and attractive valuations [5] - Although these stocks may not have the highest yields, they have historically outperformed the broader market and other dividend-paying stocks [6] Selection Criteria for Stocks - Criteria for selecting dividend-growth stocks include: - 5-Year Historical Dividend Growth Greater Than Zero [7] - 5-Year Historical Sales Growth Greater Than Zero [7] - 5-Year Historical EPS Growth Greater Than Zero [7] - Next 3-5 Year EPS Growth Rate Greater Than Zero [7] - Price/Cash Flow Less Than Industry Median [8] - 52-Week Price Change Greater Than S&P 500 [8] Specific Stock Insights - Flowserve (FLS): Expected 2026 revenue growth of 6.3%, long-term earnings growth rate of 11%, and annual dividend yield of 1.13% [11] - Analog Devices (ADI): Anticipated 2026 revenue growth of 25.1%, long-term earnings growth rate of 19.4%, and annual dividend yield of 1.43% [13] - Broadcom (AVGO): Projected 2026 revenue growth of 58%, long-term earnings growth rate of 48.6%, and annual dividend yield of 0.82% [14] - NVIDIA (NVDA): Expected 2027 revenue growth of 60%, long-term earnings growth rate of 39.1%, and annual dividend yield of 0.02% [15] - TIM S.A. (TIMB): Forecasted 2026 revenue growth of 11.8%, long-term earnings growth rate of 20.8%, and annual dividend yield of 5.37% [16]

Core Viewpoint - SKF is introducing a new segment reporting structure effective from Q1 2026 to enhance transparency and reflect its strategic focus ahead of the planned separation of the Automotive business [1][9]. New Segment Structure - The new structure will consist of three business segments: Bearing Solutions, Specialized Industrial Solutions (SIS), and Automotive [2]. - SIS will include core businesses such as Aerospace, Lubrication Lifetime Solutions, Sealing Solutions, and Magnetic Solutions [2]. Financial Reporting Changes - Corporate function costs and internal sales between Industrial and Automotive segments will be reported under "Other," with Automotive carrying its own central costs from 2026 [3]. - The sealing business for automotive applications will be transferred from the Automotive segment to SIS, resulting in a decrease of BSEK 2.4 in Automotive segment sales for 2025 [4]. Restated Financials - Restated figures for 2024 and 2025 are provided to enable comparability with the new segment reporting structure [3]. - The restated financials reflect all separation-related business transfers, including production capacity and logistic centers, to illustrate the Automotive footprint at the point of separation [5]. Customer Industry Breakdown - The customer industry breakdown for the Automotive segment remains unchanged, while the Industrial operation will have a revised breakdown including seven main industry groups [6]. Implementation Timeline - The new segment reporting and restated figures will be applied in external financial reporting starting from Q1 2026 [7].

Core Viewpoint - Momentum investing focuses on "buying high and selling higher," contrasting with traditional strategies of "buying low and selling high" [1] Group 1: Momentum Investing Strategy - Momentum investing can be risky as stocks may lose momentum when their valuations exceed future growth potential [1] - Identifying the right entry point for momentum stocks is challenging, and investors may end up with overvalued shares [1] Group 2: Bargain Momentum Stocks - Investing in bargain stocks that have recently shown price momentum may be a safer strategy [2] - The Zacks Momentum Style Score helps identify strong momentum stocks, while the 'Fast-Paced Momentum at a Bargain' screen highlights attractively priced fast-moving stocks [2] Group 3: Astec Industries (ASTE) Analysis - Astec Industries (ASTE) has shown a four-week price change of 2.7%, indicating growing investor interest [3] - ASTE has gained 24.6% over the past 12 weeks, demonstrating its ability to deliver positive returns over a longer timeframe [4] - The stock has a beta of 1.38, suggesting it moves 38% more than the market in either direction [4] Group 4: Valuation and Earnings Estimates - ASTE has a Momentum Score of B, indicating a favorable time to invest [5] - The stock has a Zacks Rank 1 (Strong Buy) due to upward revisions in earnings estimates, which attract more investors [6] - ASTE is trading at a Price-to-Sales ratio of 0.94, suggesting it is undervalued at 94 cents for each dollar of sales [6] Group 5: Additional Investment Opportunities - Besides ASTE, there are other stocks that meet the criteria of the 'Fast-Paced Momentum at a Bargain' screen [7] - Investors can explore over 45 Zacks Premium Screens tailored to different investing styles [8]

Core Viewpoint - Analysts are increasingly optimistic about infrastructure-related companies, particularly Verizon and ITT, as recent upgrades suggest potential for further gains ahead [1] Group 1: Verizon - Verizon has been upgraded to Outperform by Scotiabank with a new price target of $54.50, reflecting a 27.68% year-to-date increase to $51.12, trading at a forward P/E of 10x and offering a 5.34% yield [1] - The upgrade is based on strong subscriber growth, with postpaid phone net additions reaching 568,000 in Q4 2024, a 26.5% year-over-year increase, and fixed wireless access revenue growing 51.6% year-over-year to $611 million [1] - Scotiabank anticipates further cost reductions in 2027 and 2028, which, combined with lower churn rates, will enhance revenue growth [1] Group 2: ITT - ITT has been initiated with an Equal Weight rating by Barclays, with a price target of $220, while currently priced at $185.59, reflecting an 8.12% decline following the $4.775 billion SPX FLOW acquisition [1] - ITT's free cash flow grew 26.75% in FY2025 to $555.4 million, achieving a 14% free cash flow margin five years ahead of its 2030 target [1] - The acquisition of SPX FLOW is expected to add over $1.3 billion in revenue for 2025, but higher leverage from this acquisition may limit future acquisitions in the near term [1]

Group 1 - Wall Street is becoming more positive on infrastructure-related companies, with Scotiabank upgrading Verizon to Outperform and Barclays initiating coverage on ITT [2][6] - Scotiabank raised Verizon's price target to $54.50 from $50.25, citing strong subscriber growth and cost improvements as key factors [3][4] - Verizon's stock trades at a forward P/E of approximately 10x and has a dividend yield of 5.34%, with a year-to-date increase of nearly 26% [4][6] Group 2 - Scotiabank's analysis indicates a multi-year cost reduction strategy for Verizon, expecting further improvements in 2027 and 2028 [5] - Verizon reported postpaid phone net additions of 568,000 in Q4 2024, a 26.5% year-over-year increase, marking its best performance in over a decade [5] - ITT was initiated at Equal Weight with a price target of $220, while currently trading at $185.59, reflecting a decline of 8.12% after its acquisition of SPX FLOW [6]

Market Overview - The market experienced its largest selloff since April, with oil prices surging to nearly $120 a barrel and the VIX index indicating increased market fear [1][3] - The S&P 500 is down approximately 3% for the year, with expectations of a potential 10% correction, which is historically normal [6] Investment Strategies - Investors are advised not to panic, as the current market situation may reverse if safe travel through the Strait of Hormuz is established [4] - The current market conditions present an exceptional opportunity for investors who are not fully invested, particularly in the coming weeks [8] Sector Analysis Telecom - The telecom sector is viewed positively, with companies like Meta and Google considered value plays despite recent stock performance [9][10] Technology - Companies such as Apple and Nvidia are highlighted as value plays, with Nvidia showing strong earnings growth [11][12] Financials - Financial stocks are seen as undervalued, with recommendations for JP Morgan and HSBC, contingent on stabilization in the Strait of Hormuz [15] Energy - The energy sector is experiencing volatility, with oil prices influenced by shorts covering and geopolitical factors. Caution is advised against chasing energy stocks at current prices [18][20][21] Healthcare - The healthcare sector, including companies like Johnson & Johnson and AstraZeneca, is considered undervalued with strong growth potential [22]

Core Insights - Parker-Hannifin Corporation (PH) is positioned to benefit from strong business performance, strategic acquisitions, and a commitment to operational excellence, focusing on growth opportunities to solidify its market position [1] End-Market Strength - The Aerospace Systems segment has experienced robust growth, with revenues increasing approximately 14.5% year over year in Q2 of fiscal 2026, and management anticipates an 11% organic sales increase for the segment in fiscal 2026 [2] Acquisition Benefits - The company is actively pursuing acquisitions to expand its customer base and product offerings, including the acquisition of Filtration Group Corp. in November 2025, which will enhance its industrial filtration capabilities [3] - In September 2025, Parker-Hannifin completed the acquisition of Curtis Instruments for about $1 billion, which will improve its industrial electrification portfolio and market reach [4] Secular Growth Trends - PH has doubled its portfolio in aerospace, filtration, and engineered materials over recent years, strategically shifting towards longer-cycle products to achieve stable revenue streams, supported by secular growth trends [5] Price Performance - Over the past year, Parker-Hannifin's shares have surged by 53%, outperforming the industry growth of 23.8% [9] - The company has returned $456 million in dividends and $550 million through share buybacks in FY26, reflecting its commitment to shareholder value [8][9]