It’s a sure bet that most investors, even those who regularly devour financial media, were unaware of until recently Hello who’s there (NYSE: HI). The specialty industrial components manufacturer is a decades-old enterprise that runs an unglamorous business that rarely generates attention-grabbing news.
However, it has been a complete outperformer at times, and if anyone likes a strong but under-the-radar stockIt’s Warren Buffett. Heico’s relative obscurity ended forever when it became major investors Berkshire Hathaway It first took an ownership stake in the company earlier this year. Recently, I’ve been uploading more from Heico. Here’s a look at whether it’s a good idea for us to follow Buffett’s lead and acquire some of these stocks, also.
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Hiko’s roots go back to the late 1950s. The modern company consists of two companies: the larger Flight Support Group (FSG) and the Electronic Technology Group (ETG). The former focuses on providing spare parts and after-sales services for many different types of aircraft. As for electronic technologies, the unit does what is written on the label, supplying these components to a range of customers in sectors such as aerospace and… defense.
In the 12-month period following the third quarter of this year, FSG generated 67% of the company’s $3.8 billion in revenue. Fifty-five percent of this total comes from the commercial aviation industry.
As a company, Heico is well established in the production and supply of its goods; It likes to grow through complementary acquisitions as well. We are not ashamed to point out that its revenues rose steadily from $26 million in 1990 to $3.8 billion. She added that headline net income rose from $2 million nearly 25 years ago to $478 million in the 12 months dating back to the fiscal third quarter.
In fact, it rarely records a quarterly net loss. Speaking of the bottom line, Heico recently posted its highest-ever quarterly net sales and net income numbers (of over $992 million and over $136 million, respectively) in the aforementioned quarter. It’s no wonder this little-known stock has enjoyed a bounce this year with savvy investors eagerly buying it.
Although we don’t yet know exactly why Buffett and Berkshire invested in HICO, we can assume that these most fundamentally focused investors of all investors were attracted to this consistent good performance.
The famous financier and his team are well aware that we are in a world where travel is very popular, which supports strong demand from the commercial aviation sector. At the same time, wars and rising tensions in global hotspots are boosting the defense sector’s business.
It doesn’t hurt that Heico is also a consistent and reliable dividend payer, having paid a semi-annual dividend 92 consecutive times since 1979. The problem is that the company’s dividend yield is fairly low, at less than 0.1%.
Berkshire first purchased Heico in the second calendar quarter of this year, amassing just over 1.04 million shares in the company worth just over $185 million at the end of that period. This was capped off by a small purchase of 5,445 shares in the following quarter, at the end of which the entire stake in the rising star’s stock was worth approximately $214 million.
It’s worth noting that although the third-quarter purchase was very small, it was one of only three stock purchases Berkshire made during the three-month period. Buffett and his crew were busier selling stocks than buying them, with purchases amounting to “only” $1.5 billion versus $34.6 billion in divestments. So the fact that it considered adding a Heico stake at all strongly indicates high regard for the company.
I think this is completely justified. Heico has clearly demonstrated that it is an efficient company capable of serving its diverse customer bases well. It’s also in a good place with not one, but two of those bases (airlines and defense companies) currently seeing an uptick in time. The dividend yield could certainly be higher, but that’s not difficult. Like Berkshire, I think Heico stock is a buy these days.
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Eric Folkman He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Heico. The Motley Fool has Disclosure policy.
Warren Buffett just bought more of this top-secret 51% winner in 2024. Should you buy too? Originally published by The Motley Fool