Dover Corporation (NYSE:DOV), AMETEK (NYSE:AME), and Illinois Tool Works (NYSE:ITW) don’t make headlines like Nvidia or Tesla. Their winning formula however, has produced spectacular results.

Dover

Dover’s a collection of industrial equipment businesses. Its strategy is to acquire new subsidiaries and then encourage further growth by giving managers autonomy to run their operations.

This allows firms to be more responsive to customer needs without having to go through a central committee. But it can also increase the risk that comes with acquisitions.

This means Dover has to be very careful not to pay too much for new subsidiaries. Over the last 10 years however, its track record in this regard has been outstanding.

Over the period, earnings per share have grown at 15% a year and returns on equity have consistently been above 20%. That’s outstanding, which is why the stock’s up 250%.

Illinois Tool Works

Like Dover, Illinois Tool Works (ITW) is an industrial conglomerate that uses acquisitions to drive its growth. But there are some important differences in terms of its focus and strategy.

The firm takes a more active approach with its subsidiaries – looking to simplify operations and focus on core areas. And this gives it scope to pay slightly higher acquisition multiples.

It does however, also create a potential risk. Making operational changes to try and generate growth can create cultural issues between the central office and the subsidiary.

The company’s size can make it hard to find enough deals to maintain its previous rapid growth. But investors who bought the stock 10 years ago have more than tripled their money. 

AMETEK

AMETEK’s yet another decentralised conglomerate that has used intelligent acquisitions to generate outstanding shareholder returns. As a result, the stock’s up 228% over the last decade.

The firm prioritises durability over growth in new subsidiaries. And this helps it find opportunities where competition is limited, allowing it to pay lower multiples to bring them in.

The downside to this approach means AMETEK needs a steady stream of new opportunities to keep growing. It also means integration difficulties can’t easily be offset by stronger organic growth.

But its focus on components that are essential, specialised, but inexpensive helps reduce the natural cyclicality risk. And this is something long-term investors have benefitted from.

There’s a theme here…

Dover, ITW, and AMETEK don’t get the same attention AI stocks do. But they’ve all found a strategy that has delivered sustained results over the long term.

Acquiring smaller companies and developing them has been a winning formula. There are subtle differences in their approaches, but all three have delivered outstanding returns for investors.

There are always risks, but a formula for long-term success isn’t always easy to find. So I think growth investors should have all three on their radars.

The post 3 outstanding growth stocks UK investors have probably never heard of appeared first on The Twelfth Magpie.