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.

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The key is finding companies that are going to be able to grow their earnings consistently for a long time. And there are a couple that I think look like good candidates right now. 

Growth prospects

Acquiring other businesses can be a great source of growth. This can be risky if it’s done badly, but it can be a great way of boosting earnings for a skilled management team.

A great example is Berkshire Hathaway. Warren Buffett’s skill in making acquisitions has turned a struggling textile mill into a hugely successful conglomerate with a diversified set of operations.

As Buffett notes, Berkshire’s size now makes rapid growth a challenge. The acquisition opportunities big enough to make a difference to a $885bn business are limited.

Berkshire isn’t the only company with the ability to acquire well, though. There are other firms with a similar structure that don’t have the same obstacles of size.

Bunzl

FTSE 100 stock Bunzl (LSE:BNZL) is a great example of this type of operation. The company is a collection of around 150 subsidiaries that distribute hygiene, packaging, and safety products.

A combination of acquisitions and organic growth have seen earnings per share increase by an average of around 10% per year over the last decade. And there could well be more to come.

Management has indicated that the pipeline for acquisitions looks robust. And with a £10bn market cap, it should be a long time until the company’s size becomes any kind of obstacle to its growth.

The stock trades at a price-to-earnings (P/E) ratio of 19, which is higher than the FTSE 100 average of 13. That’s a risk for investors to consider, but the company has some unusually good attributes.

Bunzl combines the speed and reliability of a global firm with the agility and responsiveness of a local business. This is a powerful combination that I expect to bring strong growth for a long time to come.

Dover

Dover Corporation (NYSE:DOV) is another interesting growth stock – if I’d bought it five years ago, I’d have doubled my money by now. I think that makes it worth paying attention to.

The firm is a collection of around 50 businesses focused on industrial equipment, components, and support services. Its subsidiaries dominate their respective industries, making them hard to disrupt.

Dover is over twice Bunzl’s size, which increases the risk of the company’s growth slowing. And earnings per share have only increased by around 6% per year over the last 10 years. 

It’s worth noting, though, that the stock trades at a lower P/E ratio of 17. And the company’s status as a Dividend Aristocrat speaks to its durability as a growing business.

Building wealth

At today’s prices, neither Bunzl nor Dover looks like an obvious bargain. But the point of growth stocks isn’t what the company makes right now, it’s what it is going to make in the future. 

In my view, both Bunzl and Dover are incredibly robust businesses with the opportunity to grow their earnings significantly over time. And when they do, I think today’s prices will look like terrific value.

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