TransDigm (TDG) is really about 27 companies in one. Through a number of various specialized companies it has bought over the years, it dominates the aerospace parts industry.
It operates in three divisions: Power & Control, Airframe, and Non-aviation. The first segment focuses on all components related to electronic, fluid, power, and mechanical control systems (e.g., rudders, landing gear, hatches, navigation controls, etc.). The second focuses on the airframe, cabin structure, and cockpit engineering. The third division sells TDG’s components to industries other than airlines (seatbelts, lavatory components, NiCAD batteries and chargers).
It’s very likely that if you have been on an airplane or helicopter — or rocket — TDG parts were keeping it in the air. The company has far-reaching relationships with the U.S. aerospace program and the armed forces, as well as most freight and passenger airlines.
But, it’s not a household name, and it’s not a sexy business.
However, TDG is a solid company in a sector that is one of the few that could do very well in 2016.
TDG Is a Massive Aerospace Conglomerate
Most of its products are sold to the contractors and builders making planes, not directly to the airlines. TDG’s strategy has been to find reliable and successful suppliers in unique niches — where pricing can be high due to their specialized nature — and then buy them. That is why you have to see TDG as 27 business groups that are housed under one company.
Plus, TDG just added another arrow to its quiver, and it’s a perfect example of the kind of companies that TDG likes to bring into the fold. Breeze-Eastern Corporation (BZC) is the only company in the world dedicated to the design, manufacture, and sale of both rescue and cargo hoists, as well as winches for helicopters and military cargo aircraft.
Somehow TDG is getting BZC at a 6% discount to its value, although the deal isn’t complete, yet. Some big shareholders are distressed about the pricing of the takeover, given the company’s strong and unique position. But even if it gets to market value, TDG will not be hurt.
TDG Stock in an Election Year
It’s also a good move for TDG because defense spending is looking bullish for this election year.
Few politicians who are running for office are interested in cutting defense spending in an election year, and historically defense stocks are usually very strong performers during election years.
This helps TDG on both the maintenance side and the new build sides. With more money, there will be increased demand for more maintenance, and the money will also mean projects that have been monthballed for lack of funds may now get started.
On the commercial side, TDG is also a winner in one or the other sector. If the global economy remains slow, more parts and maintenance will be required for aging fleets. If it the economy begins to expand, new plane orders will be an upswing in business.
This is a very good stock to avoid increasing volatility in the broader market. Plus, it’s a predominantly U.S.-based play, so there’s less exposure to currency fluctuation risks or sputtering developing markets.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.