Why Heico (HEI) Stock is a Compelling Investment Case

Argosy Investors recently released its Q3 2020 Investor Letter, a copy of which you can download here. Year-to-date performance was 15.5% in select accounts. The S&P 500 by comparison returned 5.5%. You should check out Argosy Investors’ top 5 stock picks for investors to buy right now, which could be the biggest winners of this year.

In the said letter, Argosy Investors highlighted a few stocks and Heico Corp (NYSE:HEI) is one of them. Heico Corp (NYSE:HEI) is an aerospace company. Year-to-date, Heico Corp (NYSE:HEI) stock gained 0.4% and on October 15th it had a closing price of $114.59. Here is what Argosy Investors said:

“I bought a tiny position in Heico (HEI) during the quarter and I am excited to be an owner of this business, although I don’t love the price I paid. I expect to increase our stake over time at more attractive prices. Heico is split between the Electronic Technologies (ETG) and Flight Support Groups (FSG). The Flight Support Group is what Heico is most famous for and which has a significant moat. FSG produces over 11,000 replacement aerospace parts which require approval from the Federal Aviation Administration (FAA). As the cost of part failures is incredibly high in airplanes and many of the parts are very small, it is not easy or even economical for new entrants to participate. Heico gains approval for 300-500 new parts every year which further increases its lead on other potential competitors. I believe they can continue to gain approvals each year for the foreseeable future.

The ETG is a collection of niche businesses that have been acquired over time, and which include space flight hardware, satellite components, infrared missile simulation, and more. Heico offers the management teams of these companies continuing equity interests in their businesses which maintains the entrepreneurial culture within each acquired business.

In addition to the entrepreneurial culture maintained at each subsidiary post-acquisition, the managing Mendelson family retains a 20% ownership stake in Heico which provides significant alignment with us, the shareholders. Heico earned $2.40 per share last year and I expect earnings approaching $3 per share and growing double digits when air travel gets back to normal. I paid 35x that $3 per share of earnings and while the price is high, this is a very, very small position now, but expect to see more of it in the future.”

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In Q2 2020, the number of bullish hedge fund positions on Heico Corp (NYSE:HEI) stock increased by about 18% from the previous quarter (see the chart here), so a number of other hedge fund managers believe in Heico’s growth potential. Our calculations showed that Heico Corp (NYSE:HEI) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 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 enewsletter below to receive our stories in your inbox:

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