LRT Capital in A.O. Smith Corp. (AOS): “We Expect Earnings to Rise Sharply Over the Coming Year”
LRT Capital Management, an investment management firm, published its first-quarter 2021 investor letter – a copy of which can be downloaded here. A net return of +5.12%% was recorded by the LRT Economic Moat strategy for the Q1 of 2021, while the LRT Market Neutral strategy returned +2.4% for the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.
LRT Capital Management, in its Q1 2021 investor letter, mentioned A. O. Smith Corporation (NYSE: AOS), and shared their insights on the company. A. O. Smith Corporation is a Milwaukee, Wisconsin-based water heating and water treatment solutions provider that currently has an $11.4 billion market capitalization. Since the beginning of the year, AOS delivered a 29.86% return, extending its 12-month returns to 49.87%. As of May 27, 2021, the stock closed at $71.10 per share.
Here is what LRT Capital Management has to say about A. O. Smith Corporation in its Q1 2021 investor letter:
"A.O. Smith is the largest US manufacturer of residential and commercial water heaters, boilers and water treatment products. The company generates close to $3 billion in annual sales. The majority of the company’s business (73%) is done in North America, with the balance coming from China and India. Approximately 80% of demand is replacing existing heaters and 20% is tied to new construction. The company continues to benefit from a shift towards higher efficiency, but more expensive, tankless heaters.
A.O. Smith generates returns on invested capital in the high teens. The company uses its earnings to consistently grow its dividends and share repurchases. Over the past three years the company’s performance has been hurt by its exposure to China as its business there suffered due to the US-China trade war and poor execution. We believe the China business is back on track and the all-important US business is doing better than ever as housing demand heats up in the US. The company last reported earnings on Jan 28th and delivered 11% YoY sales growth with results beating both top and bottom line estimates.5 A.O. Smith also increased its share repurchase authorization.
We expect earnings to rise sharply over the coming year as the upswing in the US housing cycle translates to much higher earnings for the company. Shares are up 24.41% year-to-date. We believe the shares are attractive at 31.88x trailing and 24.37x forward earnings."
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Our calculations show that A. O. Smith Corporation (NYSE: AOS) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the first quarter of 2021, A. O. Smith Corporation was in 24 hedge fund portfolios, compared to 31 funds in the fourth quarter of 2020. AOS delivered a 20.20% return in the past 3 months.
The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
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Disclosure: None. This article is originally published at Insider Monkey.
