2. Garrett Motion Inc. (NASDAQ:GTX)
Number of Hedge Funds Holders: 35
Garrett Motion, Inc. (NASDAQ:GTX) ranks as the second best small cap automotive stock to buy. The company together with its subsidiaries engages in designing, manufacturing and selling of cutting edge technologies for emission reduction and energy efficient solutions for automotive and industrial space companies. The key product line of Garrett Motion, Inc (NASDAQ:GTX) include turbochargers, air and fluid compression technologies, and high speed electric motors for Original Equipment Manufacturing (OEMs) and distributors worldwide. The company has a special focus on zero emission technologies using hydrogen fuel cell systems and also develops key E-Powertrain and E-Cooling compressor products to support the global electrification trend.
The company delivered mixed results for Q2, 2024. It faced some headwinds due to softer global industry trends across both light and commercial vehicle markets. Moreover, issues such as the regional dynamics between China and Europe and commodity deflation impacted the net sales of the company. Net sales of Garrett Motion, Inc. (NASDAQ:GTX) were down 7% year-over-year during the quarter and amounted to $3.57 billion. However, the aftermarket segment of the business witnessed a 7% increase during the same time, indicating strong market demand for its products. Despite market challenges, Garrett Motion, Inc. (NASDAQ:GTX) was able to maintain profitability and achieved an adjusted EBITDA margin of 16.9%, reflecting a 40 basis point increase from the previous quarter. In addition, the company performed well on the financial front by generating $62 million in adjusted free cash flow during the quarter and also reduced its debt by $394 million year-over-year.
A key driver of the company’s potential lies in its research capabilities. Garrett Motion, Inc. (NASDAQ:GTX) made significant strides in zero emission technologies by securing its first series of production contracts for its fuel cell application. This technology along with its E-Powertrain and E-Cooling technologies align perfectly with the market trend of sustainability and regulatory pressures for lower emissions, giving the company a strong competitive edge over its peers. Moreover, the company has demonstrated its ability to make cash and drive profitability by growing its revenue by 2.87% and levered free cash flow by 31% during the past 5 years. It ended the second quarter with a strong balance sheet, with approximately $300 million in cash and cash equivalents.
GTX is trading at 7 times its forward earnings, a 54% discount to its sector. Moreover, its earnings are expected to grow 45% during the year to reach $0.32. Wall Street is also bullish on the stock and 2 analysts have a Strong Buy rating. The average price target of $12.50 implies an upside of 50.60% from current levels.
GTX was held by 35 hedge funds in Q1 2024, with total stakes worth $1.5 billion. Of those, Howard Marks’ Oaktree Capital Management was the top investor in the company and disclosed a position worth $438 million.
