Should You Consider Adding Loar Holdings (LOAR) to Your Portfolio?

Baron Funds, an investment management company, released its “Baron Global Advantage Fund” investor letter for the second quarter of 2025. A copy of the letter can be downloaded here. In the second quarter, the fund returned 22.7% (Institutional Shares), compared to the MSCI ACWI Index’s (the Index) 11.5% gain and the MSCI ACWI Growth Index’s 17.3% gain. The Fund is up 11.2%, year-to-date, compared to gains of 10.1% and 9.3% for the benchmarks, respectively. In addition, please check the fund’s top five holdings to know its best picks in 2025.

In its second-quarter 2025 investor letter, Baron Global Advantage Fund highlighted stocks such as Loar Holdings Inc. (NYSE:LOAR). Incorporated in 2017, Loar Holdings Inc. (NYSE:LOAR) designs, manufactures, and markets aerospace and defense components for aircraft and aerospace and defense systems. The one-month return of Loar Holdings Inc. (NYSE:LOAR) was -7.81%, and its shares gained 19.68% of their value over the last 52 weeks. On August 4, 2025, Loar Holdings Inc. (NYSE:LOAR) stock closed at $72.68 per share, with a market capitalization of $6.8 billion.

Baron Global Advantage Fund stated the following regarding Loar Holdings Inc. (NYSE:LOAR) in its second quarter 2025 investor letter:

"We recently initiated a position in Loar Holdings Inc. (NYSE:LOAR), a niche aerospace parts manufacturer founded in 2012. Loar boasts an 85% proprietary product portfolio, with over 50% of its revenue derived from the high-margin aftermarket channel. Proprietary, aftermarket focused products are among the strongest business models in the aerospace and defense industry, as evidenced by the success of TransDigm. This segment is attractive for several reasons. First, the aerospace industry is growing, with passenger miles increasing faster than GDP at roughly 4% per year. Second, Loar benefits from strong pricing power due to the critical nature of its components, the absence of substitute products (owing to high proprietary content), and high barriers to entry. These components are high-risk, low-cost for airlines, which are reluctant to compromise safety for minimal cost savings (most Loar parts cost less than $1,000). Additionally, substitution of existing parts requires a lengthy and costly FAA approval process, which is often uneconomical for competitors to pursue given the high-variability, low-volume nature of aircraft components (millions of components per aircraft, each with low production volumes). These factors should enable Loar to achieve approximately 10% organic revenue growth and 15% adjusted EBITDA growth. Furthermore, beyond these value drivers, Loar is executing a disciplined acquisition strategy, successfully integrating 17 acquisitions over the past 13 years.

The aerospace supply chain is highly fragmented, with many components supplied by smaller, privately owned businesses that sell to system integrators, Tier 1 or Tier 2 manufacturers, or large original equipment manufacturers. Loar aims to double the EBITDA of acquired businesses within three to five years, focusing on: 1) aerospace and defense businesses; 2) proprietary content and processes; 3) significant aftermarket exposure or the potential to expand it; 4) niche markets or products with strong market positions; 5) opportunities to cross-sell existing products; and 6) long-standing customer relationships. Compared to its peers, Loar places less emphasis on the commercial segment, maintaining a more diversified end-market mix that management believes provides greater stability across economic cycles. This robust M&A strategy has been integral to driving elevated growth since the company’s inception, with revenue and EBITDA compounding at 17% and 18%, respectively, over the past five years, and 26% and 35% over the past ten years. We believe Loar has a long runway for growth. In comparison, peer TransDigm generated over $4 billion in EBITDA last year (compared to Loar’s $146 million) and continues to grow at a high single-digit to low double-digit rate. Given the strength of Loar’s business model and a management team with over a decade of proven success, we believe the company could compound EBITDA organically at a mid-teens rate, further enhanced by accretive M&A, for years to come."

Loar Holdings Inc. (NYSE:LOAR) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 20 hedge fund portfolios held Loar Holdings Inc. (NYSE:LOAR) at the end of the first quarter, compared to 32 in the previous quarter. While we acknowledge the potential of Loar Holdings Inc. (NYSE:LOAR) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered Loar Holdings Inc. (NYSE:LOAR) and shared the list of best aerospace and defense stocks to invest in. In addition, please check out our hedge fund investor letters Q2 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.