McIntyre Partnerships, an investment management company released its fourth quarter investor letter. McIntyre Partnerships returned approx. 2% gross and 0% net through the end of 2024 compared to the Russell 2000 Value’s ~8% return. A copy of the letter can be downloaded here. The fund’s trailing five-year returns are about 27% gross and 22% net annually compared to benchmark’s return of about 7% annually. For the first time since 2019, the fund underperformed its benchmark in 2024, which was not a good year. The underperformance was driven by declines in several large, long-held positions in the portfolio. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2024.
In its fourth quarter 2024 investor letter, McIntyre Partnerships emphasized stocks such as Garrett Motion Inc. (NASDAQ:GTX). Headquartered in Rolle, Switzerland, Garrett Motion Inc. (NASDAQ:GTX) designs and manufactures turbocharger and electric-boosting technologies. The one-month return of Garrett Motion Inc. (NASDAQ:GTX) was -2.02%, and its shares lost 3.16% of their value over the last 52 weeks. On February 14, 2025, Garrett Motion Inc. (NASDAQ:GTX) stock closed at $9.20 per share with a market capitalization of $1.965 billion.
McIntyre Partnerships stated the following regarding Garrett Motion Inc. (NASDAQ:GTX) in its Q4 2024 investor letter:
“Garrett Motion Inc. (NASDAQ:GTX) is a leading manufacturer in the moat-rich turbocharger (TB) market, with a global end-market and industry-leading margins. As TBs are not used in battery electric vehicles (BEVs), the market has concerns about GTX’s terminal value, which is suppressing its valuation. GTX trades ~5x my 2025 levered FCF with leverage at 2x EBITDA. Beyond its core business in TBs, GTX has a separate BEV growth story that is currently pre-revenue with high upfront costs, depressing GTX’s reported run-rate FCF. As a result, I believe GTX is even cheaper on owners’ earnings than the headline numbers suggest. Beyond its BEV investments, GTX has been using its FCF to buy back significant amounts of stock. Since 2022, GTX has retired almost one-third of its shares outstanding. If either BEV penetration is less bad than feared or GTX has success in its BEV investments, I believe GTX shares are significantly undervalued.
Before I dig into numbers, I want to revisit GTX’s TB business, which I believe has a deep moat and is highly predictable. TBs are a high-tech, mission-critical component of a car’s engine. The TB market is a duopoly between BWA and GTX. While there are also smaller Asian competitors, GTX and BWA enjoy significant engineering and R&D advantages over their peers, which creates a moat and allows GTX to earn among the highest margins and lowest annual price downs of any publicly traded auto supplier. TBs are essentially mini-jet engines that take the exhaust fumes and push that air back into the engine, increasing power and fuel efficiency. TBs are highly sophisticated devices – the TB’s turbine spins at up to 150,000 RPMs, yet the distance between the spinning turbine and the wall of the TB can be as small as a seventh the width of a human hair. GTX’s years of R&D allow them to deliver products that competitors cannot match. As a testament to this, Bosch and Mahle, two of the largest auto suppliers in the world, launched a TB joint venture in the late 2000s with the explicit blessing and support of GTX’s customers, the auto OEMs. A scaled competitor teaming up with your customers to break your duopoly is a business nightmare, yet after a decade, Bosch-Mahle gave up and exited the space. They could not match GTX’s products. Finally, the TB is a critical component of an engine, which is, in turn, the most important component of a car. Engines are designed years in advance, and once a product is designed into an engine, it is virtually impossible to design out. Once Mercedes designs a Garrett TB into an AMG engine, GTX has an almost guaranteed 100% renewal product with a multi-year life cycle. GTX’s backlog is exceptionally sticky and 90% booked 3+ years out. While BEV is a wild card, GTX has visibility on its core operations for years…” (Click here to read the full text)
A close up of an engine piston with a commercial turbocharger attached.
Garrett Motion Inc. (NASDAQ:GTX) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 34 hedge fund portfolios held Garrett Motion Inc. (NASDAQ:GTX) at the end of the third quarter which was 32 in the previous quarter. While we acknowledge the potential of Garrett Motion Inc. (NASDAQ: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 as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In another article we discussed Garrett Motion Inc. (NASDAQ:GTX) and shared Alluvial Capital Management’s views on the company. In addition, please check out our hedge fund investor letters Q3 2024 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.