LRT Capital Management, an investment management firm, published its second-quarter 2021 investor letter – a copy of which can be downloaded here. A return of +29.68% was recorded by the LRT Economic Moat strategy for the Q2 of 2021, extending its 12-month returns to +42.18%. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of LRT Capital, the fund mentioned Hexcel Corporation (NYSE: HXL), and discussed its stance on the firm. Hexcel Corporation is a Stamford, Connecticut-based industrial materials company, that currently has a $4.7 billion market capitalization. HXL delivered a 16.02% return since the beginning of the year, extending its 12-month returns to 30.35%. The stock closed at $55.94 per share on August 09, 2021.
Here is what LRT Capital has to say about Hexcel Corporation in its Q2 2021 investor letter:
“Hexcel manufactures carbon fiber composite materials with the primary end markets being aerospace and defense. The company’s stock price was hit heavily last year due to the decline in the aerospace market, but the stock is making an impressive comeback this year as the outlook for travel and aerospace demand improves. The near-term demand for lightweight, high-performance carbon fiber composites is still uncertain, but the longer-term trend is clearly very strong. As airplane manufacturers look to improve the fuel efficiency and performance of their planes, the primary way of doing this is to reduce weight. The 787, 777X and A350 are just the most recent examples of planes from Boeing and Airbus that utilize an increasing amount of carbon fiber materials in their construction.
Hexcel reported a profit of $0.08 per share for Q2 2021, while revenue declined 15% year-over-year. Just as is the case with Marriott, we do not view these results as meaningful or indicative of a long-term trend, but rather a once in a century aberration due to the Covid-19 pandemic. Once Covid-19 recedes, we expect the demand for more fuel-efficient planes to return rather quickly, powering the demand for the company’s light weight carbon composites.
Shares are +12.23% year-to-date and +39.75% over the past twelve months.”
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Based on our calculations, Hexcel Corporation (NYSE: HXL) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. HXL was in 18 hedge fund portfolios at the end of the first quarter of 2021, compared to 25 funds in the fourth quarter of 2020. Hexcel Corporation (NYSE: HXL) delivered a 8.04% return in the past 3 months.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.
Disclosure: None. This article is originally published at Insider Monkey.
