We recently compiled a list of the 10 Cheap and High-Quality Stocks Picked by Former SAC Capital Analyst. In this article, we are going to take a look at where Garrett Motion Inc. (NASDAQ:GTX) stands against the other cheap and high-quality stocks.
Jonathan Tepper, the chief investment officer of little-known hedge fund Prevatt Capital, has an interesting approach towards investing. Tepper, whose stock picks generally focus on quality and value of firms, believes that investors would be better served learning about the modern history of finance, as it relates to the rise and fall of big businesses as well as financial meltdowns, instead of being bogged down by economic theory based on mathematics that might not play out in the real world as it does in books. Tepper leads Prevatt Capital which had a 13F stock portfolio worth more than $296 million at the end of the first quarter of 2024.
Tepper is the author of The Myth of Capitalism, a book that dives deep into the public policy surrounding industrial concentration in the United States and the rise of powerful monopolies. Tepper, in a recent appearance on Capital Allocators with Ted Seides, a finance podcast, underlined that his investing thesis was based on his studies about powerful monopolies that were owned by investors he admired. Tepper noticed how a lot of these monopolies were businesses that, if they did not exist, somebody would have to invent them. He remarked that he thus learned to invest in firms that had a natural reason for existing.
His comments can be seen in action if we look at the latest financial disclosures of his hedge fund. More than 60% of the stock portfolio of Prevatt Capital is concentrated in the consumer goods and services sectors. Tepper has doubled down on many of his long bets, increasing stakes in four of the top ten stocks in the portfolio of Prevatt Capital during the first quarter of 2024. The total value of the 13F portfolio has increased by more than $25 million in the first three months of the year due to this buying activity, compared to the previous quarter. His top ten holdings comprise nearly 80% of the total portfolio.
There are several reasons why Tepper prefers the value-based long term investing approach of his mentors to create wealth, as opposed to the shorting strategy adopted by many other hedge fund managers on Wall Street. Some of the reasons include short squeezes, lots of hype around new firms, high borrowing costs, and several funds shorting the same firms. In contrast, a value-based approach creates wealth at a healthy pace and avoids permanent loss of capital or significant drawdowns. Buying quality firms also comes with the added benefit of strong cash flows, steady dividend payouts, and thoughtful share buybacks to increase value.
Our Methodology
For this article, we scanned the stock portfolio of Prevatt Capital according to the 13F filings submitted at the end of the first quarter of 2024. We selected the top 10 stocks from this portfolio. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close up of an engine piston with a commercial turbocharger attached.
Garrett Motion Inc. (NASDAQ:GTX)
Number of Hedge Fund Holders: 35
Prevatt Capital’s Stake: $25,844,000
Garrett Motion Inc. (NASDAQ:GTX) makes and sells auto parts and equipment. It is ranked second on our list of top stock picks of Prevatt Capital. Garrett Motion Inc. (NASDAQ:GTX) has been featured in the Prevatt portfolio since the fourth quarter of 2023. Tepper increased the stake of his hedge fund in the company by nearly 4% during the first three months of 2024. This stake is now worth more than 8.7% of the total portfolio. Garrett Motion Inc. (NASDAQ:GTX) is a value offering that often slips under the radar of top inventors. However, Tepper has identified the value in the shares over the past few months.
Garrett Motion Inc. (NASDAQ:GTX) is on track to deliver positive sales and earnings growth for the next few years by becoming embedded in the production chains of top car makers. It aims to deliver on growth numbers by focusing on development of zero emission technologies, decreasing the net debt to EBITDA ratio, and authorizing share buybacks to soothe uncertain investors. As a leading manufacturer of turbochargers and other automotive components, Garrett Motion Inc. (NASDAQ:GTX) benefits from a strong market presence and technological expertise already.
In its Q1 2024 investor letter, Alluvial Capital Management, an asset management firm, highlighted a few stocks and Garrett Motion Inc. (NASDAQ:GTX) was one of them. Here is what the fund said:
“Garrett Motion Inc. (NASDAQ:GTX) delivered nice results in February. The company issued strong guidance for 2024 and best of all, indicated it would use nearly all its 2024 free cash flow to repurchase stock. The company wasted no time, buying back a whopping 10 million shares for $90 million on March 6. Garrett will continue to harvest the cash flows from its dominant turbochargers business, investing in creating products for electric vehicles and returning excess cash to shareholders. Investors seem to be waking up to the reality that while electric vehicles are a near-inevitability, it will be a long time still before internal combustion engines lose their relevance. By the time they do, Garrett Motion will have completed the transition to an electric vehicle equipment manufacturer and will have returned billions in capital to investors.”
Overall GTX ranks 2nd on our list of the cheap and high-quality stocks picked by former SAC Capital Analyst Jonathan Tepper. You can visit 10 Cheap and High-Quality Stocks Picked by Former SAC Capital Analyst to see the other cheap and high-quality stocks that are on hedge funds’ radar. While we acknowledge the potential of GTX as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GTX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
