Down 20%, Activist Involved, Insiders Buying: I’m Going With the Flow
With earnings still growing and Starboard circling, I’m using this strategy around a ‘mundane’ industrial.
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The S&P 500 posted its eighth straight week of gains on Friday. Yet there is still no clear resolution in sight to reopening the Strait of Hormuz.
For each week the Iran war continues, its impact on the global economy grows, as strategic petroleum and other reserves are drawn down further. Results from Target (TGT) and Walmart (WMT) highlighted how surging gasoline prices are affecting consumers.
None of this has mattered to the markets, however, as revenue and earnings growth in Q1 has come in much higher than projected. It helps that the largest stock by market capitalization, Nvidia (NVDA), delivered year-over-year sales growth of 85%.
Nvidia’s market cap is above $5 trillion. That is higher than the combined market values of all the companies in the Russell 2000 with over a $1 trillion to spare.
My trade today is around a mundane GARP stock whose roots go all the back to the end of 17th century. Flowserve Corp. (FLS) is a manufacturer, installer, and servicer of systems that control the movement of fluids, with facilities in nearly 50 countries. Texas-based Flowserve sells pumps, valves, and mechanical seals to the energy, chemical, and power generation industries — among many others — supported by over 150 quick service centers.
Approximately 60% of Flowserve’s overall revenues come from supplying and servicing both the oil and gas and chemical industries, so is a bit of a backdoor play on a bullish commodity cycle. The company is also increasingly focusing on nuclear and conventional power generation, aided by new vacuum and seal technologies. The industries seem to have solid longer-term growth drivers providing the massive amounts of electricity that AI data centers require to operate.
Flowserve saw profits surge 38% in 2025 to $3.64 er share share on revenue growth of 4%. Less than a year ago, a huge merger with Chart Industries that would have diversified its industry verticals to include data centers, was derailed when Baker Hughes (BKR) made a superior offer. Flowserve’s management smartly elected not to enter into a bidding war and collected a $266 million breakup fee. Leadership then pivoted and acquired Trillium Flow Technologies’ Valves Division earlier this year for around $500 million in cash. The purchase expanded Flowserve’s footprint into supplying nuclear plants.
Flowserve currently sports a market capitalization of around $9 billion and the stock trades at just under $70. The stock is down some 20% since the company reported Q1 numbers late in April.
First-quarter results were impacted by the geopolitical events in the Middle East. Only 12% of its sales come from the Middle East, though, and the company should benefit when the conflict ends and repairs get underway for all the energy and other key facilities that have been damaged in the Gulf region.
The company has a solid balance sheet, and the stock has recently attracted the interest of activist Starboard Value, which holds a roughly 6% stake now. There also have been several insider purchases in the stock since mid-May.
Earnings are expected to rise in the low teens here in 2026 on sales growth of 3%-6%. The equity currently trades at under 15 times forward earnings estimates and provides a small dividend yield of 1.25%, making it a decent GARP play.
Option Strategy
Here is how one can establish a position in FLS using a covered call strategy. As a reminder, covered-call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.
Selecting the January $65 call strikes, fashion a covered call order with a net debit in the $57.50 to $58.00 a share range (net stock price – option premium).
This strategy delivers downside protection of 18% across the trade expiration, including three projected quarterly dividend payouts of $0.22.
The strategy also provides upside potential of more than 13% over the option duration even if the stock trades down 7% over the option duration.
At the time of publication, Jensen was long FLS.
