Applied Industrial Technologies is one of the largest distributors and service providers of industrial motion and control technologies in North America, With a focus on bearings, power transmission, fluid power, flow control, and automation solutions. AIT serves a broad range of industries, including automotive, energy, transportation, construction, agriculture, and mining. Two thirds of AIT’s revenue comes from Maintainence, Repair and Operations (MRO), which is an attractive, high-ROI and recurring revenue business.

Profit growth is being driven primarily from consistent operating margin expansion thanks to cost efficiency, product mix shifts, and acquisition synergies. Management has proven exceptional ability in this regard. We believe the slow-growth period in 2024 has ended, as any boost to US manufacturing activity resulting from either secular trends (US manufacturing in a rebound after a two-year recession) or President Trump’s trade policies would only increase AIT’s total addressable market (TAM). The acquisition of Hydradyne is also expected to play favorably to its growth outlook. We would take advantage of the recent weakness in the stock to add.