Is Hollysys Automation Technologies (HOLI) A Smart Long-Term Buy?

Davis Funds, an investment management firm, published its “Davis Global Fund” fourth quarter 2020 investor letter – a copy of which can be downloaded here.  A return of 23.06% was recorded by the fund for the Q4 of 2020, outperforming its MSCI ACWI benchmark that delivered a 16.25% return in the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Davis Global Fund, in their Q4 2020 investor letter, mentioned Hollysys Automation Technologies Ltd. (NASDAQ: HOLI) and shared their insights on the company. Hollysys Automation Technologies Ltd. is a Beijing, China-based process automation company that currently has a $758.9 million market capitalization. Since the beginning of the year, HOLI delivered a -15.11% return, while its 12-month return is also down by -11.56%. As of April 06, 2021, the stock closed at $12.47 per share.

Here is what Davis Global Fund has to say about Hollysys Automation Technologies Ltd. in their Q4 2020 investor letter:

“Hollysys Automation (HOLI) has been a long-term holding in Davis Global Fund, but is still unfamiliar to most investors. Hollysys is a Chinese manufacturer of automation equipment for power plants, petrochemical facilities and factories, as well as safety and control systems for high-speed rail and subway cars. The company has attractive growth prospects in a handful of industrial automation niches, where it has built a loyal customer base over the years, as well as in the rapidly-growing high-speed rail market in China. While Hollysys has seen some order delays during the pandemic, it is a provider of essential equipment to keep the Chinese economy running and should resume growing once order cycles return to their normal cadence. HOLI is one of the cheapest stocks in the Fund, currently trading for 8–9x owner earnings, and if one takes into account the roughly $0.6 billion of net cash the company has on its balance sheet (equal to well over half of the company’s market cap), HOLI is trading under 5x owner earnings.

So why is it so cheap? Part of Hollysys’ challenge is that while it is one of the top industrial automation firms in China, it is still relatively unknown to the investing public in the U.S., where HOLI is listed. The recent push to de-list U.S.-traded Chinese companies has led to worries that it could have an adverse impact on HOLI’s trading liquidity and even force a de-listing in three years, if regulators do not find a compromise. This could make for a bumpy ride in the capital markets and force the company to seek out a more receptive trading venue (i.e., one closer to its end market of China), but we believe there is underlying value in Hollysys that will eventually be more fully recognized, regardless of where the stock trades. The value is being driven by the earnings of the business, rather than the exchange it is being traded on.”

Our calculations show that Hollysys Automation Technologies Ltd. (NASDAQ: HOLI) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Hollysys Automation Technologies Ltd. was in 16 hedge fund portfolios, compared to 13 funds in the third quarter. HOLI delivered a -15.91% return in the past 3 months.

The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

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