StockStory, a fintech investing company, highlights Howmet Aerospace (HWM) as a January 2025 stock pick. The company's differentiated vertical integration, focus on fuel-efficient solutions, and advancements in automation position it for continued success in the aerospace and transportation industries.
This is one of the January 2025 stock picks of StockStory, a fintech investing company seeking to identify long-term ideas that beat the market using an AI-driven approach. Howmet Aerospace (HWM) is a powerhouse supplier to the makers of planes and trucks. Its differentiated vertical integration approach has led to advantages in innovation and reliability, allowing the company to command top market share and to exhibit years of profitable growth.
While the market is starting to recognize its ever-improving business quality and mission-critical role in aerospace and commercial transportation, we think that two exciting aspects of the story are still somewhat underappreciated. First, the company is at the cutting edge of automating its manufacturing plants, using advanced robots and AI to further its already-large lead. Second, Howmet will benefit from the rapidly rising electricity demands of datacenters that power the AI revolution. This is due to the company's role as the top blade supplier to industrial gas turbine (IGT) manufacturers. Taken together, dominance of its core aerospace/transport markets and exciting secular tailwinds mean Howmet rises to the level of a StockStory Monthly Pick.Let's start by understanding the core market in which Howmet plays. OEMs (Original Equipment Manufacturers) produce planes and trucks for the aerospace, defense, and commercial transportation markets. Below are the dominant OEMs in each vertical along with their key products. These OEMs do not design and manufacture everything that goes into a plane or truck, so they rely on suppliers like Howmet for many parts and components, prioritizing suppliers who prove both innovative and reliable. Cost is important for commoditized inputs, but focus has more recently shifted to suppliers that enhance fuel efficiency — a priority because fuel accounts for 20-30% of airline operating expenses, for example, and emissions regulations are tightening globally. Suppliers of jet engine parts, fasteners, landing gear, and truck wheel/brake systems achieve fuel efficiency with lighter, more durable components that withstand ever higher temperatures and pressure over many years. Sticky, long-term relationships with OEMs are the rewards for suppliers that can invest in R & D to design the most fuel-efficient solutions and can reliably deliver these solutions when needed. High capital requirements, stringent certifications, and long product cycles create significant barriers to entry for suppliers in aerospace, defense, and commercial vehicle industries. You can't just write some code or create an online marketplace and break into these industries. These high barriers favor incumbents, positioning market leaders for continued success so long as they can keep customers happy. What Is Howmet Aerospace? Howmet Aerospace provides engineered solutions for the aerospace and transportation industries. Practically speaking, the company designs and manufactures complex, mission-critical components of aircraft frames, jet engines, and commercial trucks. The company is dominant in the market for turbine blades and vanes in the high-temperature sections of jet engines and gas turbines, for example. Howmet is also a leading provider of fasteners—everything from simple bolts to complex fastening systems — that are found from nose to tail in commercial and defense aircraft as well as in commercial vehicles. The company's forged wheels, which are lightweight and corrosion resistant, serve the largest OEMs in commercial trucking. Although the company's portfolio may be broad, Howmet's guiding light is providing products that facilitate more fuel-efficient aircraft and commercial trucks, which can result in significant cost savings over the useful life. The company does this by pushing the limits on lighter-weight components that can withstand more heat and pressure over many years of operation.The company's origins trace back to more than a century ago, but its current form can be attributed to two major separations. Howmet Aerospace traces its origins back to Alcoa, a company with two different businesses. In November 2016, Alcoa therefore split into two independent, publicly-traded companies. Post separation, Alcoa focused on the production of raw aluminum and bauxite while Arconic focused on engineered products and advanced manufacturing for aerospace, automotive, and other industries. In April 2020, there was yet another separation, with Arconic splitting into Arconic and Howmet Aerospace. The former kept products like rolled products (metal sheets), aluminum extrusions (metal frames and rails), and building/construction systems while the latter is the Howmet we know today. Competition isn't the top concern for Howmet thanks to its strong market position and unique dynamics of its industry. In its bread-and-butter Engine Products segment, for example, Howmet holds over 60% market share and has increased this share each of the last five years, according to management
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