Is TransDigm Group Incorporated (TDG) the Best Industrial Stock to Buy According to Street Analysts?
We recently compiled a list of the 10 Best Industrial Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where TransDigm Group Incorporated (NYSE:TDG) stands against the other industrial stocks.
Industrial stocks in the United States encompass a broad range of sectors including manufacturing, transportation, aerospace, defense, and construction. These sectors form the backbone of the American economy, driving innovation, employment, and growth. Companies within this category often engage in the production of machinery, equipment, and infrastructure essential for various industries. The performance of industrial stocks is closely tied to the overall health of the economy. Economic expansion typically boosts demand for industrial goods and services, while recessions can lead to contractions in this sector.
Recently, industrial stocks have shown resilience amid global supply chain disruptions and economic uncertainty, thanks in part to technological advancements and diversified service offerings. Advancements in automation, robotics, and artificial intelligence are transforming the industrial landscape. Companies are increasingly investing in smart manufacturing technologies to enhance productivity and reduce operational costs. Environmental concerns and regulatory pressures are pushing industrial firms toward sustainable practices. Companies are adopting greener technologies and renewable energy sources to meet regulatory standards and consumer expectations. Industrial stocks play a vital role in the US economy, offering a diverse range of investment opportunities. Understanding the dynamics of different sectors, keeping abreast of market trends, and evaluating economic indicators are crucial for making informed investment decisions in this space. With continued advancements in technology and a focus on sustainable practices, the industrial sector remains a critical and evolving component of the financial market landscape. Overall, industrial stocks returned close to 10% so far in 2024.
According to Federal Reserve Industrial Production and Capacity Utilization report, most major market groups saw gains in May. Consumer goods increased by 1.3 percent, driven by rises across all components except home electronics. Business equipment edged up by 0.2 percent despite a drop in transit, buoyed by gains in information processing and industrial sectors. Defense and space equipment rose by 1.0 percent, marking a nearly 10 percent increase from a year ago. The materials market group saw a 0.8 percent increase, with non-energy durables and non-energy nondurables each up by around 1 percent, and energy materials rising by 0.6 percent. In manufacturing, overall output rose by 0.9 percent in May, slightly above last year's level. Durable manufacturing increased by 0.6 percent, nondurables by 1.1 percent, and other manufacturing (publishing and logging) by 0.2 percent. Within durable manufacturing, notable gains were seen in wood products (up 2.6 percent), machinery (up 2.3 percent), and computer/electronic products (up 0.8 percent). Furniture and related products saw the largest decline (down 2.6 percent). In nondurables, printing and support activities decreased by 1.5 percent, while other categories saw gains. Mining output rebounded with a 0.3 percent increase in May, following declines in the previous two months. Oil and gas extraction rose, offsetting decreases in other mining and support activities. Utilities output grew by 1.6 percent, surpassing last year's level by 3.9 percent. Capacity utilization for manufacturing rose to 77.1 percent in May, slightly below its long-run average. Mining's operating rate reached 92.7 percent, well above its average, while utilities remained notably below their typical operating levels despite a slight increase to 71.5 percent.
So, what are the best industrial stocks to buy in this current environment?
Our Methodology
We leveraged Insider Monkey's comprehensive database of 920 prominent hedge funds to identify the top 10 industrial stocks with the highest level of hedge fund investment as of Q1 2024. These stocks are listed in order of increasing hedge fund ownership, providing insight into the most popular industrial stocks among elite investors.
An aerial shot of a modern commercial jetliner in flight, its wings glinting in the sunlight.
TransDigm Group Incorporated (NYSE:TDG)
Number of Hedge Funds Holders: 78
TransDigm Group Incorporated (NYSE:TDG) Incorporated designs, produces, and supplies aircraft components in the United States and internationally. In Q1 2024, the count of hedge funds holding stakes in TransDigm Group Incorporated (NYSE:TDG) rose to 78 from 65 in the previous quarter, based on Insider Monkey’s database of 920 hedge funds. These stakes collectively amount to around $6.62 billion in value. Mark Massey's AltaRock Partners emerged as the largest stakeholder among these hedge funds during this period. On June 20, a Deutsche Bank analyst raised TransDigm Group Incorporated (NYSE:TDG) price target to $1,524 from $1,435, maintaining a Buy rating ahead of the company's investor day next week. The adjustment reflects strategic developments such as the early CPI acquisition closure, Calspan unit divestiture, and Raptor Scientific acquisition, expected to bolster TransDigm Group Incorporated (NYSE:TDG) financial outlook. The analyst anticipates potential capital deployment of up to $18 billion for mergers and acquisitions over the next 10 quarters, estimating each $1 billion invested could generate about 2% equity value creation by the third year.
Mar Vista Focus strategy stated the following regarding TransDigm Group Incorporated (NYSE:TDG) in its first quarter 2024 investor letter:
“TransDigm Group Incorporated (NYSE:TDG) delivered another impressive quarter, exceeding analysts’ expectations for both earnings and profitability. Its gross and EBITDA margins widened significantly, driven by strong performances in commercial aerospace and defense. Revenue growth in commercial aerospace aftermarket parts (+27%) and new defense orders were key contributors to this outperformance. Management responded by raising the full-year 2024 forecasts for revenue and profitability.
Continued growth in both defense and commercial aftermarket should be fueled by recovering passenger traffic, higher aircraft utilization, and a strong bookings backlog. With domestic travel exceeding pre-pandemic levels and international travel nearing full recovery, TransDigm appears well-positioned for continuous growth. This, combined with its efficient operations, should drive long-term stock price appreciation.”
Overall TDG ranks 4th on our list of the best industrial stocks stocks to buy. You can visit 10 Best Industrial Stocks to Buy According to Hedge Funds to see the other industrial stocks that are on hedge funds’ radar. While we acknowledge the potential of TDG as an investment, our conviction lies in the belief that some 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 TDG 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.