dimanche 31 mai 2020

Heico (HEI)

Heico designs, manufactures and sells aerospace, defense and electronics-related products and services. They have an aftermarket division which has almost no competition. About half of their sales are related to commercial aviation, which may not seem a good thing at all these days. But they've got a large moat. Something similar to Precision Castparts (which was bought by Berkshire Hathaway, a few years ago).

Thanks to Giverny Capital, I've discovered Heico about 3 years ago, because I've got the habit of following closely the transactions of that fund. However, I never bought Heico shares until recently because that stock has always been expensive (the word "expensive" is relative to what I'm usually willing to pay, because for some people who buy stocks like Shopify, Heico may not seem that expensive).

Here's Heico PE since 2010:

2010: 24
2011: 28
2012: 26
2013: 27
2014: 30
2015: 29
2016: 27
2017: 34
2018: 38
2019: 45
Current PE: 37

I'm always a bit reluctant for such pricey stocks, but, like I've written before, when you've found an exceptional stock, you must pay the price.

In which way is Heico exceptional? First, they've got a large moat, the kind of moat you can't find easily. Then, their net profit margin is close to 20% and their ROE is about 20. Plus, their EPS growth was about 21% for the last 5 years, which is great (very few companies have these 3 numbers above 20%). Then, it's a sector that should continue do to well in the years to come (after a hard time due to coronavirus). Finally, the company has almost no debt.

Over the last 5 years, the stock has risen by almost 300%.

When you can gather all this positive information about a specific stock, you know you've got something special. And HEI latest results which were out recently, right during a pandemic affecting a lot the economy, showed how great this company is.

Heico could probably become one of my forever-stocks. Actually, there's some place on my list since Dollar Tree and MTY are not there anymore.

6 commentaires:

  1. Are you breaking your rule about the importance of predictability of earnings to buy this stock? Or does it have very predictable earnings? Of course predictable earnings is also a very huge consideration for the likes of Warren Buffett.

  2. According to Value Line, Heico's predictability is about 95%.

  3. I discussed Heico in a recent newsletter here if you're interested...


  4. Great letter Jason. Ive always wondered why the SP-500 isnt used as the benchmark for all stock portfolios. I get the obvious reasons, but advisors imo dont add value if thry dont beat the SP-500.



  5. If you have a 100% US stock mandate then it's appropriate to use the S&P500 as the benchmark. Our benchmarks are the Vanguard all in portfolios: VBAL (for our Balanced Growth), VCNS (Conservative Growth) & VEQT (Focused Growth). I will also note that the S&P500 is now quite concentrated in a few names much like the TSX is concentrated in Financials and Energy. Cheers.