Is CAE (CAE) an Underappreciated Stock by the Market?

Artisan Partners, an investment management company, released its “Artisan Mid Cap Value Fund” first quarter 2024 investor letter. A copy of the letter can be downloaded here. In the first quarter, its Investor Class fund ARTQX returned 5.61%, Advisor Class fund APDQX posted a return of 5.65%, and Institutional Class fund APHQX returned 5.71%, compared to an 8.23% return for the Russell Midcap Value Index. Divergent sector positioning, including above-benchmark concentration in communication services and lower exposure in industrials, was a major contributing factor to the underperformance. Holdings in information technology, real estate, and consumer staples contributed to the strategy’s performance in the quarter. In addition, please check the fund’s top five holdings to know its best picks in 2024.

Artisan Mid Cap Value Fund highlighted stocks like CAE Inc. (NYSE:CAE), in the first quarter 2024 investor letter. CAE Inc. (NYSE:CAE) is a simulation training and critical operations support provider that operates through Civil Aviation and Defense and Security. The one-month return of CAE Inc. (NYSE:CAE) was -10.37%, and its shares lost 15.65% of their value over the last 52 weeks. On June 17, 2024, CAE Inc. (NYSE:CAE) stock closed at $18.16 per share with a market capitalization of $5.787 billion.

Artisan Mid Cap Value Fund stated the following regarding CAE Inc. (NYSE:CAE) in its first quarter 2024 investor letter:

“In the industrials sector, we had two detractors: CAE Inc. (NYSE:CAE) and U-Haul. CAE is an aerospace and defense company providing pilot training via either the sale of full flight simulators or third-party training services. When we established our position in CAE in May 2022, the business was still recovering from the impacts from COVID. Lack of investor interest offered us an attractive entry point to purchase a high-quality business that was well positioned in a growing industry having high barriers to entry. Over its history, the company has transformed itself from a flight simulator equipment maker to primarily a services company with a high share of recurring revenues. Though the civil business is growing well on positive commercial traffic trends, disappointing margins in the defense segment continue to weigh on investor sentiment. Management now expects defense margins to remain mid single digits versus prior expectations of an inflection in the second half of the year, citing legacy low-margin contracts and delays in new program awards. While progress on margins has been disappointing, CAE remains a good business, and the valuation is compelling on both an absolute basis and relative to the broader market as it now sells for just 11X normalized EBITA.”

A ground crew preparing an aircraft for launch, a sense of urgency in their movements.

CAE Inc. (NYSE:CAE) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 13 hedge fund portfolios held CAE Inc. (NYSE:CAE) at the end of the first quarter which was 15 in the previous quarter. In the current quarter, CAE (NYSE:CAE) reported revenue of $1.1 billion, down 6% year over year. While we acknowledge the potential of CAE Inc. (NYSE:CAE) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

In another article, we discussed CAE Inc. (NYSE:CAE) and shared the list of best aerospace stocks to buy on sale. In addition, please check out our hedge fund investor letters Q1 2024 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.