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Is Gentex Corporation (GNTX) A Smart Long-Term Buy?

Kinsman Oak Capital Partners, an investment management firm, published its “Kinsman Oak Equity Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly return of 2.7% was delivered by the fund for the Q2 of 2021, trailing its benchmarks, the S&P 500 Index, which delivered an 8.6% return, the Russell 2000 Index with a 4.3% return, and the TSX Composite Index that had a 10.2% gain for the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

In the Q2 2021 investor letter of Kinsman Oak Capital Partners, the fund mentioned Gentex Corporation (NASDAQ: GNTX) and discussed its stance on the firm. Gentex Corporation is a Zeeland, Michigan-based camera-based driver assistance systems manufacturer with a $7.5 billion market capitalization. GNTX delivered a -6.57% return since the beginning of the year, while its 12-month returns are up by 14.52%. The stock closed at $31.43 per share on August 24, 2021.

Here is what Kinsman Oak Capital Partners has to say about Gentex Corporation in its Q2 2021 investor letter:

"In our view, concerns about chip shortages have been weighing on GNTX. Auto manufacturers will experience bottlenecks in new vehicle production if they cannot procure critical components. But we continue to believe these business disruptions are a temporary problem that is more than priced into the stock today. Inventory depletion among auto retailers persists which will eventually have to get fixed one way or another (Appendix E). We believe ~13x FY22 EPS ex-cash is simply too cheap for a high-quality industrial company with 32% EBITDA margins, minimal maintenance capex, and a pristine balance sheet."

Image by Varun Kulkarni from Pixabay

Based on our calculations, Gentex Corporation (NASDAQ: GNTX) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. GNTX was in 34 hedge fund portfolios at the end of the first half of 2021, compared to 35 funds in the previous quarter. Gentex Corporation (NASDAQ: GNTX) delivered a -8.87% 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, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 best EV 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.