We recently published a list of the 10 Best of Breed Stocks to Buy For The Third Quarter of 2024 According to Bank of America. Since Howmet Aerospace Inc. (NYSE:HWM) ranks 8th on the list, it deserves a deeper look.
Analysts at BofA Securities recently published a list of “best of breed” stocks for the third quarter of 2024, which they believe are the top choices for investors on the back of their high quality, liquidity, earnings growth and margin upside when compared with peers. BofA’s “best of breed” basket of stocks has reportedly outperformed the MSCI All Country World Index (NASDAQ:ACWI) by 584 basis points, and returned a whopping 470% since its inception in April 2010.
Bank of America analyst Michael Hartnett thinks these best of breed companies have strong balance sheets, cash flow and high EPS growth as well as competent management. Hartnett believes these companies generate the “best relative returns” in the long term and can protect investors against short-term volatility.
For this article we scanned BofA’s best of breed basket of stocks and picked 10 companies with the highest number of hedge fund investors. 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 state-of-the-art commercial jetliner taking off, displaying the modernity of the company’s aerospace and defense division.
Howmet Aerospace Inc. (NYSE:HWM)
Number of Hedge Fund Investors: 44
HWM is one of the stocks in BofA’s best of breed stocks list. Howmet Aerospace Inc. (NYSE:HWM) is soaring after the company upped its earnings estimate for the year on the back of rising demand. Howmet Aerospace Inc. (NYSE:HWM) revenue in the first quarter jumped 14% year over year. Howmet Aerospace Inc. (NYSE:HWM) is well-diversified and can offset slowness in different market segments of the industry. Its business spans across Engine Products, Fastening Systems, Engineered Structures and Forged Wheels. During the first quarter the company generated FCF of $95 million, while it has $533 million in cash and cash equivalents, more than enough to pay the $205 million debt maturing this year.
During the Q1 earnings call the company talked in detail about guidance and effects of Boeing-related headwinds on its business:
Demand for air travel continues to be very strong. And if anything, will be constrained during the summer season by the availability of new aircraft, especially narrow-body aircraft. Asia-Pacific travel, which has been lagging the U.S. and Europe has been increasing rapidly. And is now back to approximately 90% of pre-pandemic levels. International Asia-Pacific travel was up approximately 50% in the recent months and speaks well to future aircraft demand especially wide-body aircraft.
Freight requirements also continue to be robust. The one item that needs to be set out is the fact of the FAA restrictions on the Boeing 737 MAX production of 38 per month in the light of continuing quality problems at Boeing. These facts are extensively reported in the press and have resulted in lower production, well below the prior levels of approximately 30 aircraft per month, which in itself was well below the 2023 targets of 38 aircraft per month. Clearly, the prospect of going up to rate 42 and rate 47 per month is now unlikely in 2024. This has caused Howmet Aerospace Inc. (HWM) to completely replan our year. And we’ve concluded that a further reduction in build to approximately 20 aircraft per month average for the year is a more secure assumption than that previously reported of 34 aircraft per month.
Read the entire earnings call transcript here.
Average analyst price estimate on the stock is $85.95, which presents a 10% upside potential from the current levels. Wall Street expects Howmet Aerospace Inc.’s (NYSE:HWM) earnings to grow 30.40% this year, 20% next year and 22% on average for the next five years on a per-annum basis. Based on these growth estimates, the stock’s P/E of 32 is justified.
Overall, Howmet Aerospace Inc. (NYSE:HWM) ranks 8th on Insider Monkey’s list titled 10 Best of Breed Stocks to Buy For The Third Quarter of 2024 According to Bank of America. While we acknowledge the potential of Howmet Aerospace Inc. (NYSE:HWM), 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 Howmet Aerospace Inc. (NYSE:HWM) 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.
