Should You Be Optimistic on Kennametal’s (KMT) Upside Potential?

Ariel Investments, an investment management company, released its “Ariel Small Cap Value Fund” third-quarter 2025 investor letter. A copy of the letter can be downloaded here. US equities continued their rally in the third quarter. The macro environment was supportive in the quarter despite concerns around tariffs, inflation, and labor market softness. In the quarter, Ariel Small Cap Value Tax-Exempt Composite appreciated +12.80% gross of fees (+12.65% net of fees) against this backdrop, compared to +12.60% and +12.39% returns of the Russell 2000 Value Index and the Russell 2000 Index, respectively. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2025.

In its third-quarter 2025 investor letter, Ariel Small Cap Value Strategy highlighted stocks such as Kennametal Inc. (NYSE:KMT). Headquartered in Pittsburgh, Pennsylvania, Kennametal Inc. (NYSE:KMT) is a leading manufacturer of tungsten carbide metal cutting tooling. The one-month return of Kennametal Inc. (NYSE:KMT) was 23.98%, and its shares lost 2.88% of their value over the last 52 weeks. On November 27, 2025, Kennametal Inc. (NYSE:KMT) stock closed at $27.66 per share, with a market capitalization of $2.109 billion.

Ariel Small Cap Value Strategy stated the following regarding Kennametal Inc. (NYSE:KMT) in its third quarter 2025 investor letter:

“Lastly, specialty cutting tool insert maker, Kennametal Inc. (NYSE:KMT) declined after reporting disappointing quarterly results and restating 2026 guidance below consensus. The company expects another down year for EPS, driven by negative volumes and continued end-market weakness. While broader economic uncertainty may affect the timing of a recovery, we anticipate an inflection in organic growth during the second half of 2026, supported by improving U.S. industrial activity, potential Fed rate cuts, reshoring trends, rising global auto production, and sustained strength in aerospace and defense. Meanwhile, KMT continues to maintain its commitment to shareholder returns via cash dividends. We remain constructive on the company’s disciplined execution, ongoing simplification and modernization efforts, and long-standing capital return strategy. Its scale, product quality, and low-cost production continue to offset pricing pressure, while strategic initiatives aimed at enhancing economies of scale support future margin expansion.”

Kennametal Inc. (NYSE:KMT) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 29 hedge fund portfolios held Kennametal Inc. (NYSE:KMT) at the end of the third quarter, which was 32 in the previous quarter. While we acknowledge the risk and potential of Kennametal Inc. (NYSE:KMT) as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than Kennametal Inc. (NYSE:KMT) and that has 10,000% upside potential, check out our report about this cheapest AI stock.

In addition, please check out our hedge fund investor letters Q3 2025 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.