Headwaters Capital Management, an investment management firm that was recently founded last September 2020, published its first quarterly letter, the HCM Q4 2020 Investor Letter – a copy of which can be downloaded here. The portfolio is composed of 25 stocks that went live on 2020, that's why no investment performance was discussed in the initial letter hence, only the reasons behind the fund's latest stock picks were presented.
Headwaters Capital Management, in their Q4 2020 Investor Letter said that they believe, Entegris, Inc. (NASDAQ: ENTG) will trade at a premium due to its resilient business model. Entegris, Inc. is a company that provides products and systems for the use of semiconductor devices. The company currently has a $15 billion market cap. For the past 3 months, ENTG delivered a 43.37% return and settled at $112.33 per share at the closing of January 22nd.
Here is what Headwaters Capital Management has to say about Entegris, Inc. in their Investor Letter:
"Semiconductors are the picks and shovels for technology innovation and may represent one of the most attractive secular growth opportunities in the market today. Entegris provides the picks and shovels that enable the manufacturing of these advanced chips. Entegris generates high returns on capital and has a long runway for profitable reinvestment of these profits going forward. This consistent and profitable revenue growth outlook combined with a balance sheet with minimal leverage is exactly the type of business that I want to own for the long-term.
In terms of valuation, I believe ENTG should trade at a premium to the market given its resilient business model, above average revenue growth potential and high return on invested capital. As a general rule of thumb, the S&P 500 has traded at a long-term average free cash flow multiple of ~23x and the current market multiple is ~25x. ENTG has laid out a conservative forecast for $4 of EPS and free cash flow in 2023. Applying a premium multiple of 30x FCF yields a fair value of $120. This would result in an annualized return to shareholders of 13% with the opportunity for continued compounding of investor capital beyond 2023."
Last September 2020, we published an article telling that Entegris, Inc. (NASDAQ: ENTG) was in 28 hedge fund portfolios. Its all time high statistics is 30. ENTG delivered a huge 100.84% return in the past 12 months.
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