Market volatility in July reminded investors of the risks tied to increasingly crowded trades powered by the artificial intelligence boom and a massive run in semiconductor shares. Trivector Research sees opportunities in what it calls "non-tech compounders" for investors looking to diversify beyond AI without compromising on a company's growth characteristics. "Non-tech compounders can play an important role in portfolios if AI leadership broadens or volatility increases," wrote Adam Parker, founder of Trivector Research. Trivector's list of thematic baskets of stocks is designed around the need to diversify away from stocks that are among the most crowded in the market. The firm screened the 1,000 largest, non-technology companies by market capitalization, looking for those with free cash flow margins in the top third. Companies in the bottom decile for free-cash-flow conversion were excluded, and stocks needed to have been in the top half of the market for three-, six-, and 12-month price momentum, with expanded gross margins over the last four quarters and expected to widen them further over the next four. The resulting selection of stocks spans health care, consumer staples, industrials and consumer discretionary companies. Eli Lilly is the biggest company by market value to make the cut. The drugmaker exceeded expectations and widened its edge in obesity drugs. Lilly reported second-quarter revenue of $23 billion, up 48% from a year ago, driven primarily by higher volumes of Mounjaro and Zepbound. The company also raised its full-year outlook. In July, Eli Lilly agreed to to acquire AtaiBeckley to advance therapies for treatment-resistant depression and other mental health conditions. Recently, the company partnered with CVS Health to expand access to GLP-1 medications, boosting its direct-to-consumer weight management program. "Lilly is building for the future. With our next-generation weight-loss medicine retatrutide and its complete clinical data package in hand, new manufacturing capacity coming online and exciting new assets entering our pipeline through business development, Lilly's future, after 150 years, has never been brighter," CEO David Ricks said at the time. Parker-Hannifin offered a different example of compounding. The motion and control equipment maker posted record fiscal fourth-quarter sales of $5.8 billion, up 9.8%, while organic sales grew 8%. The company recently completed the purchase of Curtis Instruments , announced two pending deals and bumped its annual dividend by 11%, marking 70 consecutive years of increases. "We are forecasting fiscal 2027 to be a record year for Parker, supported by a broadening recovery in industrial markets and positive organic growth across all market verticals," CEO Jenny Parmentier said at the time of the results. Tapestry appeared as a potential winner with strong long-term growth. The parent of Coach and Kate Spade has benefited from strong momentum at Coach, helping to drive fiscal third-quarter revenue up 21% from a year earlier, with Coach sales jumping 31%. Tapestry also raised its full-year outlook, underscoring the earnings and margin momentum. "From this position of strength, we move confidently into the future with significant opportunity ahead. We are raising our outlook for the fiscal year, underscoring the power of Tapestry and our commitment to driving durable growth and long-term shareholder value," CEO Joanne Crevoiserat said. Tapestry is expected to release fiscal 2026 fourth quarter and year-end results on Thursday.
