With the market making all-time highs, investors may believe it is difficult to find value.
Looking at the market leaders, they seem to be priced for perfection- making fundamental research even more crucial.
However, we believe uncovering attractively priced, well-managed businesses in overlooked areas is possible.
Here is an example: Sealed Air Corporation (SEE), a global packager.
While over 35% of its peers in the Materials sector are profitless, SEE generates higher profitability on their shareholders' equity than the average ROE of companies in the Russell 2000® Value Index. Meanwhile, Sealed Air’s profit to revenue stands at nearly 10.9%, which is greater than the average for other small cap value stocks. Despite its higher quality attributes, we believe SEE is mispriced and selling substantially below its intrinsic worth, at less than half the market’s price/earnings ratio.
Technical analysis is one of our 10 Principles of Value Investing™, in which we analyze the price movements of a stock to better understand the shareholder's behavior. We feel Sealed Air Corporation is currently overlooked, evidenced by the basing chart pattern below. Apathetic Investors may provide a margin of safety and a platform for the stock to go higher should our catalyst materialize.
Source: FactSet Research Systems, Inc., Daily data from 2/10/2020 to 2/11/2025. The data in this chart represents the stock price of Sealed Air Corporation (SEE) over a period of time. All indices are unmanaged. It is not possible to invest in an index. Past performance does not guarantee future results.
Another example is Hexcel Corporation (HXL), a manufacturer of carbon fiber reinforcements, resins, and other composite materials for the commercial aerospace and defense industries. We’ve long admired HXL and analyzed the company several times following a business recession induced by the COVID-19 pandemic; however, we believed the stock was ahead of fundamentals until now.
Only 6% of the installed global commercial aircraft fleet is ‘composite intensive,’ referring to wide-body planes that utilize a significant amount of lighter-weight carbon fiber materials for greater fuel efficiency and cost savings relative to metal-based substitutes.
This commercial segment has yet to recover from the global pandemic. In 2019, wide-body deliveries reached 400 units. In 2023, deliveries barely exceeded half that and 2024 production was constrained by supply chain bottlenecks, indicating there is still room for HXL to rebound. Driven by an expected recovery in wide-body deliveries, management is guiding to a 14% compound annual sales growth rate for the company’s commercial aerospace segment over the next three years.
That growth should be supplemented by greater composite penetration in the broader commercial aircraft market where Hexcel’s composites are critical for stealth platforms.
While this segment of the business is recovering, we are seeing:
- Attractively priced shares relative to cash flow, trading below prior aerospace M&A multiples.
- A healthy dose of insider buying
- A push into new defense production
Sealed Air and Hexcel are two examples of active value investing at work.
We believe this environment presents an opportunity to spend time and energy applying our process to uncover quality businesses and deliver superior long-term results for our shareholders.