TDG is a suitable investment due to strong margins and growth in aerospace/defense, though high debt requires monitoring.

I will be discussing the first stock in today's video, which is Transdigm Group stock. This stock is not widely known, but it is an interesting company.

If you are not aware of it, TransDegm makes its own small parts inside aircraft, such as locks, hydraulic valves, pumps and ignition systems. This company was founded in the 1990s with the support of a private investment firm called Kelso & Co.

Its strategy for many years has been to acquire companies that manufacture its own proprietary, source-exclusive, FAA-approved parts, and then operate them for profit rather than growth.

Since going public about 20 years ago, Transdegm Group has acquired more than 100 companies in its three sectors: energy and control, aircraft structures, and a small non-aviation sector.

But in essence, the aviation and defense sectors account for about 95% of the company's revenue across these three channels. It sells new aircraft to Boeing and Airbus to provide spare parts and after-sales spare parts to airlines.

It also sells to the US armed forces and its allies.

So, this is a really interesting sector. When a part of an aircraft receives certification from the Federal Aviation Administration (FAA), that certification is attributed to a specific manufacturer's design.

If an airline needs to replace this part, the technician cannot look for other alternatives; he needs the same approved part.

Therefore, Transdigm has built approximately 90% of its investment portfolio around this type of single-source spare parts. Now, this ability to set prices is generating significant gains.

Today, we are witnessing Boeing and Airbus ramping up production after years of supply chain disruptions, and commercial air travel is experiencing increasing growth, generating greater demand for spare parts in the aftermarket, as well as rising global defense spending.

This means, in short, that Transdigma's distribution channels are expanding rapidly. Another interesting aspect of the company's business, besides the aviation and spare parts sector, is the space sector.

Part of the Power and Control division manufactures actuators and control devices specifically for space applications. Therefore, satellite and space systems suppliers are key customers.

So, Transdigma’s mission is not limited to supplying spare parts for commercial or fighter aircraft, but extends beyond that, in addition to its recent acquisition of Steelex Systems, the only American manufacturer of mobile wave tubes qualified for use in space, which supports Airbus’s OneSat satellite production line.

The deal collapsed after the Justice Department indicated it would file a lawsuit to block it, but this shows Transdigm's interest in continuing to expand in this area.

Therefore, I think we will likely see more proposed deals from Transdigm in the future. In the third quarter of its most recent fiscal year, TransDigm reported net sales of approximately $2.7 billion, a 23% year-over-year increase.

Cash flow reached approximately $900 million during the quarter. The company has generated more than $2 billion in free cash flow since the beginning of the year.

In short, Transdigm is a leader in the aerospace industry, owning approved design parts for the aviation and military sectors, for which there is no real substitute. All of its key end markets are currently experiencing very rapid growth.

And then there is the space aspect, where Transdigm is still striving to find its place, especially after the failed acquisition I mentioned. A great company that deserves to be followed, and perhaps doesn't get enough attention.

Therefore, I recommend you check out the TransDigm collection.

Honestly, when I saw the company name, as I mentioned earlier, I thought it was another medical company. I thought it was like "transdream." But no, it's a really interesting company.

It is valued at $61 billion, and I expected that the profit margins would not be very high, but over the past twelve months, I have observed gross profit margins approaching 60%, operating profit margins of 46%, net profit margins of 21.3%, free cash flow margin of 19.3%, and a futures price-to-earnings ratio of 23.9 times.

So, a very interesting name. As for the aviation and defense sector, I believe it is a suitable investment option for them. But yes, if you are interested in this field, I think it is worth studying, especially since it has decreased by 17.6% since the beginning of the year.

Therefore, it never reached its highest levels, unlike many other companies.

Yes, and there are several reasons for that. I mean, the company has been under scrutiny from regulatory and political bodies. This company has had an organizational structure for decades regarding how aircraft parts are certified, and has built one of the highest-margin business models in the industry.

It should be noted, if you are an investor, that Transdigm is debt-based. This is an intentional part of their business model. Its total debt amounted to approximately $34 billion.

Its net debt-to-EBITDA ratio rose to about 5.8 times, which is close to its all-time high.

This is the nature of the company's work. This is how it has historically operated in its various growth sectors. So, this is something worth keeping an eye on if you are interested in this business, and I think the time may be right to buy when the price is low.

However, if we look at the stock's performance over the past five years, we will find that it has seen a remarkable rise.

Yes, and that's the point. You know, these stocks we talked about today, like TransDigm Group, Micron, and Marvell, are companies that have seen significant gains over the past few years.

But there is a growth story behind it . As you know, we talk about the importance of looking beyond the stock price. It is true that evaluation is important, but what is more important is to look at the underlying growth story to see if that evaluation is justified.

I believe these three companies already have strong justifications for their growth over the next three to five years. That's precisely why we wanted to talk about it today. We don't want to talk about stocks that we don't believe have sustainable growth stories.

I believe these companies still have great opportunities for growth.