Is Kadant (KAI) Stock a Buy For 2021?

Ewing Morris recently released its Q3 2020 Investor Letter, a copy of which you can download here. The Flexible Fixed Income Fund posted a return of 5.0% for the quarter, underperforming the S&P 500 Index which returned 8.93% in the same quarter. You should check out Ewing Morris’s top 5 stock picks for investors to buy right now, which could be the biggest winners of 2021.

In the Q3 2020 Investor Letter, Ewing Morris highlighted a few stocks and Kadant Inc (NYSE:KAI) is one of them. Kadant Inc (NYSE:KAI) is a supplier of equipment used in the global papermaking and paper recycling industries. In the last one year, Kadant Inc (NYSE:KAI) stock gained 36.7% and on January 6th it had a closing price of $147.07. Here is what Ewing Morris said:

“Kadant is a high-quality industrial business that sells mission-critical capital equipment, plus associated after-market parts, primarily to the pulp, paper and wood industries (i.e. cardboard, building products, tissue, etc.). Kadant’s business follows the “razor/razorblade” model in which new equipment sales are profitable but the bulk of profit (~70%) is from selling recurring parts and consumables.

The company adds value for its customers by reducing their input costs, improving their product quality and reducing downtime; thereby creating sticky customer relationships and pricing power. This is reflected in Kadant’s gross margins in excess of 40% and returns on capital greater than 50%.15

The company is run as a decentralized conglomerate with ~20 individual business units with a proventrack record of value-creating acquisitions and a very articulate set of acquisition criteria16 with a great track record for capital allocation.

Our investment in Kadant is an example of our re-focus on high-quality Compounder businesses and small/mid capitalization companies. It is representative of our executing on our mandate shift towards Compounders.”

Pixabay/Public Domain

In Q3 2020, the number of bullish hedge fund positions on Kadant Inc (NYSE:KAI) stock increased by about 60% from the previous quarter (see the chart here), so a number of other hedge fund managers believe in Kadant’s growth potential. Our calculations showed that Kadant Inc (NYSE:KAI) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 216% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 121 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. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website:

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