Seeking Compounders 4

Taking a look at my watchlist - Industrials

In this little post, I’ll quickly introduce three Compounders from my current watchlist. These are companies that I already researched a decent bit and would love to either own or would research further (do the last 20%) if they dropped a good bit. Compounders are companies that can generate high capital returns for a long time and generally have a high-quality business and deep moats. Most of my portfolio is invested in compounders and I go into more detail about it in this article.

This is the fourth installment of this series. Subscribe if you don’t want to miss the next one. Here are the previous posts: Seeking Compounders 1, Seeking Compounders 2, Seeking Compounders 3.

Heico Corporation HEI 0.00%↑

Heico is an industrial company in the aerospace industry. The company is focused on providing vital parts to the industry that cost a fraction of the total cost. Each plane has thousands of parts and once a part is inside a plane, it has to be replaced with a fitting part eventually. Parts must be verified as Part Manufacturer Approvals (PMA) to comply with regulations. This leads to excellent unit economics and a deep moat.

Insiders own 20% of Heico, with 16.8% for the Mendelson family. The company is focused on Free cash flow growth, primarily through organic growth and acquisitions. Very little capital is returned to owners. I wrote more about this fantastic but very expensive business here.

Before I get to the next company, I’d like to offer you a discount on Seeking Alpha Premium, a service I use and contribute to daily. If you want to check out the service with my affiliate link, you can save 50% for the first year!

Amphenol APH 0.00%↑

Amphenol is a leading designer and manufacturer of connectors, interconnects, sensors and cables, amongst others. The company is a beneficiary of the electrification of everything. The world is moving towards clean energy and increased efficiency. Connectivity in an increasingly connected world with increasingly complex devices are further tailwinds for the business. Amphenol has a high-performance entrepreneurial culture. This is achieved by having General Managers run the individual segments, clearly focusing on business unit performance and accountability. General Managers report to Operating Group Managers. This allows better collaboration within the operating groups. Sadly, the insiders only own 2.1%, and the incentive plan is based on relatively low target sales and EPS growth goals. Nonetheless, Amphenol is a high-quality compounder. If you want to read more, read my article about it.

Nordson Corporation NDSN 0.00%↑

Nordson is a leader in the precision technology industry, which means adhesives, industrial coating systems, management & control solutions, polymer processing systems, medical fluid solutions and electronic processing, testing and inspection systems. Half of the revenue is recurring from parts and consumables. Nordson has a diverse set of customers within five different end markets. Nordson is a slow-growing company and expects organic growth of around 3-5%, but they also grow via M&A with a good framework focused on synergies, margin, growth, ROIC and price. The stock came down slightly in recent months but still isn’t cheap for the relatively slow growth. You can read more about it in my latest article.

I hope you found some value in this small piece; let me know if you like these kinds of posts.