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Why Houlihan Lokey (HLI) Stock is a Compelling Investment Case

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Polen Capital Management recently released its Q3 2020 Investor Letter, a copy of which you can download here. During the third quarter of 2020, the Polen U.S. SMID Company Growth Composite Portfolio returned 7.11% gross of fees, while the Russell 2500 Growth Index was up 9.37%. You should check out Polen Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of this year.

In the said letter, Polen Capital highlighted a few stocks and Houlihan Lokey Inc. (NYSE:HLI) is one of them. Houlihan Lokey Inc. (NYSE:HLI) is an investment banking company. Year-to-date, Houlihan Lokey Inc. (NYSE:HLI) stock gained 32.6% and on November 11th it had a closing price of $64.82. Here is what Polen Capital said:

"We started a position in leading global investment bank Houlihan Lokey during the quarter. We also own this company in the U.S. Small Company Growth strategy.

Houlihan Lokey is a leading global investment bank with expertise in mergers and acquisitions, capital markets, financial restructuring, and valuation. The company holds the number one position in most of the markets that it serves, and its diverse mix of revenues has driven strong financial performance across market cycles.

Houlihan Lokey has been able to grow revenues in both strong and more challenging economic environments. Historically, the firm’s M&A-related work has driven significant growth in revenues during strong economic periods while its financial restructuring business has driven growth in tougher times, when M&A activity is typically lower. Its market is competitive with larger investment banks in the mix, but Houlihan Lokey has benefitted from companies’ interest in hiring independent advisors who are free from corporate conflicts. This factor became an even more important driver of the Houlihan’s business after the Global Financial Crisis.

In corporate finance, Houlihan Lokey is also more focused on the middle market where the transactions are smaller, there is less competition from big banks, and there is less cyclicality. In the near to medium term, we believe the company is well positioned to benefit from the meaningful ramp in restructuring activity driven by the pandemic and low oil prices, which is negatively impacting its energy clients. Over the long-term, we think the company should continue to benefit from various tailwinds that include: a shift to independent investment banks, an increase in middle market M&A activity as baby boomers age out their businesses and private equity participation remains high, and a preference amongst high performing investment bankers to join boutique firms that have better cultures and offer more job stability with better economics."

In Q2 2020, the number of bullish hedge fund positions on Houlihan Lokey Inc. (NYSE:HLI) stock increased by about 60% from the previous quarter (see the chart here), so a number of other hedge fund managers believe in Houlihan Lokey's growth potential. Our calculations showed that Houlihan Lokey Inc. (NYSE:HLI) isn't ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 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. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

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 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website:

Disclosure: None. This article is originally published at Insider Monkey.